Student Debt Crisis: Are There Any Solutions?

Many would argue that higher education in this country is the best in the world. France has some of the best culinary schools, and Oxford and Cambridge have rivaling histories of literary renown, but only in the United States will you find comparable culinary and literary prowess as well as thousands of virtually every other topic one could imagine -- only to the United States do more than half a million students come every year to study.

But at what cost? Americans (and visiting students) have always paid more for education. And in the past 30 years, in the past 10 years, in the past two years, the cost of higher education, including tuition and loan repayment, has steadily increased. But 2006 will likely go down as the worst year in history for student borrowers, and as the mountains of debt grow, young peoples' lives are forever changing.

Holly MacGibbon graduated from NYU's theater program with $120,000 in debt, which has obviously prevented her from taking any entry-level theater jobs. "Without $600 a month in loan payments, I could take a lower-paying theater job instead of working outside my field. Summer theater jobs, where most young performers start out, pay $200 to $300 a week, which is just not enough when you have $600 in loan payments."

And Julia Stubben's post-graduate life has been entirely governed by her student debt. "Being in debt has greatly affected my financial decisions. I do not enjoy my job, and it is not the career I would have chosen for myself, and in order to take the job I had to move three hours away from my boyfriend, family, and friends. Pretty much, I live in seclusion in a relatively boring rural area and hate this stage of my life. The only reason I am in this situation is because of the job -- which is paying off my loans."

According to Toby Chaudhuri, communications director at the progressive research group Campaign for America's Future, continuing to charge exorbitantly for education will have grave results. "If you want to create an America that works for everybody, you have to give every child the right to education," he said. "Families are getting hit with interest rates and across the country they are pinching pennies to afford to send their kids to college."

What's behind the high cost of education

Student debt is climbing for three reasons: Interest rates have begun to rise, tuition is skyrocketing, and student aid programs are stuck in 2003.

2006 has been the worst in history for government action against student borrowers. In February, President Bush rolled out the Deficit Reduction Act, which cut $12 billion in federal student aid money. Part of the plan includes a hike in interest rates on federal student loans and loans taken out by parents. The interest rate on Stafford Loans to students rose from 5.3 percent to 7.14 percent on existing loans and to 6.8 percent on new loans. Interest rates for Parent Loans for Undergraduate Students (PLUS) loans increased even more dramatically, from 6.1 to 7.4 percent on existing loans and to a whopping 8.5 percent on new loans.

These interest rate hikes are designed to ease the federal deficit, but this very budget plan also includes tax breaks for Americans making more than $1 million a year -- a move that negates anything saved in the interest rate increase.

The Deficit Reduction Act is particularly egregious because low interest rates have historically been the way students paid for college. Just as low mortgage rates ease the ever-increasing value of real estate, low interest rates allow students to earn undergraduate and graduate degrees, and even have a little time to outrun their slowly collecting debt. Now, with those rates going up as tuition skyrockets, recent graduates will be caught and buried before they have time to throw their caps in the air.

Though it is not a new problem, student debt has quickly climbed in the last few years. Between 1993 and 2004, the percentage of students needing to borrow money jumped from 46 to 66 percent [PDF]. Debt for graduates averages around $19,000 across public and private schools. Ten years ago, public school borrowers needed about $8,000. Now they borrow about $17,250 -- a 65 percent increase, adjusted for inflation.

Parents and families are also increasingly debilitated by higher education costs. In 2004, 15.3 percent of parents of graduating high school seniors took out PLUS loans. Their average debt load was $17,709 -- $14,056 at public institutions and $21,984 at private schools.

In the past five years, tuition and fees at public universities have risen by 40 percent, adjusted for inflation. Over the same time period, consumer prices in general rose less than 9 percent. Comparisons to tuition costs over the last 30 years are even more dramatic: adjusted for inflation, college tuition is roughly triple what it was in the '70s.

In addition to swelling tuition costs and interest rate hikes, student debt has been crushed by flagging amounts of direct aid. Since 2003, Congress has flat-funded the Pell Grant, the most common form of direct aid for students. Currently, the maximum Pell Grant is $4,050 a year.

According to Luke Swarthout, who works for the State PIRGs' Higher Education Project, "The buying power of the Pell Grant has decreased. Today, it doesn't even keep up with inflation, let alone college costs." To wit: In 2004, more than 88 percent of Pell Grant recipients who graduated with a bachelor's degree also had student loans.

According to Richard Vedder, author of "Going Broke by Degree: Why College Costs Too Much," tuition rates are exorbitant and increasing for a variety of reasons. One factor is that universities have shifted their spending toward expensive research, administration and student services like residences, and student centers to boost schools' reputations and attract more students -- a move that he believes has hurt student instruction considerably.

Interestingly, Vedder also suggests that the increase in student loans facilitates rising tuition costs. Vedder believes that because virtually no one can go to school without financial aid, no one expects to, which makes it easier for students to accept exorbitant tuition rates. The thinking goes, neither these students nor their peers are paying for school right now, so tacking on a few more thousand to their school loans barely makes a conceptual difference. Furthermore, as tuition increases, loans necessarily increase, but students continue to earn and spend as they did before -- their debt goes from unimaginably huge to more unimaginably huge -- a somewhat elusive differentiation for most students, making it difficult to protest or even feel as if there is anything they can do about it.

School loans can be a lifelong decision

As today's students and recent graduates age, they're going to find their lives very different than preceding generations. High monthly debt payments will reduce their opportunities, and without a major change, it will only get worse.

Toby Chaudhuri with Campaign for America's Future estimates, "In the next decade, over 4.4 million low- and moderate-income academically qualified students will opt not to enroll in four-year university degree programs, and another two million will opt not to enroll in higher education at all." As a result, Campaign for America's Future reports that in 2002, student loan debt caused 14 percent of graduates to delay marriage, 27 percent to delay a medical or dental procedure, 30 percent to delay buying a car, 21 percent to postpone having children, and 38 percent to put off buying a home.

For some, the burden of student debt negates the advantage of a college education at all. MacGibbon holds a bachelor's degree, but she wishes she never went to school. "I definitely regret going. I wish that I had just come to New York and done an intensive theater training program -- a good one for around $20,000. I guess it's great to have a degree, but I would definitely not make this decision again."

This is precisely the fear that haunts the progressive lobby in Washington: that tuition and the lack of adequate aid will make students feel that higher education is just "not worth it." Chaudhuri worries about the global consequences of the cost of American education. "We are faltering while other countries are making investments -- China graduated 500,000 engineers in 2004; the United States graduated 70,000. We have to do better for families if we want to stay on top," he adds.

Luke Swarthout notes that students are naïve about how their debt is going to affect their life after school. "What I find is that students don't realize their debt until after they graduate," he says.

When they do realize how much debt they have accumulated, student borrowers' choices immediately following graduation are often dictated directly and expressly by that burden. Many students go right back into school after graduation to get more skills, get qualified for higher-paying jobs and continue to defer their loans. Or, they join the workforce, where their options are limited by their debt burden.

Recent graduates are far less likely to pursue a career in public service where they won't make as much money as they would in the private sector. One attorney, who asked not to be named, graduated from NYU in 2005 with $185,000 in debt and currently works 10-12 hour days for a large law firm in New York City. He says that the public sector was not an option for him, and he maintains that he is not nearly the only one. "It is true for many of my colleagues: If we weren't in so much debt, we would quit tomorrow! We know we brought it upon ourselves when we chose to get educated at one of the best and most expensive schools in the country, but taking on this debt does really trap you: Salaries are just lower anywhere else in the country. I would not be living in New York if I didn't have this debt."

Solutions to the student-debt crisis

How are graduates able to get out from under their debt? For borrowers in financial dire straits, declaring bankruptcy is an often-attempted but rarely viable option. But the passage of the business-friendly and individual-hostile Bankruptcy Bill in April 2005 has all but closed that option as well.

Aside from declaring bankruptcy, several organizations are working to reform school loan policies. The state PIRGs, for instance, propose a three-pronged approach. As Luke Swarthout describes it, "We need to increase grant aid at the federal level and lower tuition rates at the state level. We need reforms in loan programs, especially for people that want to go into social and public service careers. The third piece is cutting out waste in the student loan programs and redirecting it to students."

There are also various plans circulating in Congress to cut interest rates. The state PIRGs' Higher Education project has proposed a bill that would cut interest rates in half for borrowers with the most need. Under this bill, the typical undergraduate borrower would save $5,600 over the life of his or her loans.

Lauren Asher, associate director at the nonprofit Project on Student Debt, emphasizes reshaping the current lending system to make it more accessible to borrowers. The group's aim is to create a lending system that adjusts repayment based on a number of factors: dependents, borrowers' current income and public service. "You have to pay back your loans, but you can pay them back in a way that has some relationship to what you can really afford," Asher said. "We want to create a system that encourages work and repayment, and can reduce default."

In addition to providing solid information up front to prospective borrowers, Asher believes lenders should make room for unpredictability in recent graduates' earning capacities. "There's a limit to certainty about the value of a degree in the marketplace -- we think people need some protection so they can afford to take the risk that going to college entails."

On august 9, a federal commission on the future of higher education published a report that called for, among other things, broad changes in tuition costs and the way we pay for school. The report suggested increasing the Pell Grant and professed that tuition should increase in proportion to income increases. Furthermore the panel called on policy makers to find new ways to make school affordable.

The PIRG program calls for more in the way of debt relief for borrowers who choose to enter public service. Currently in place are several loan-forgiveness programs on both the federal and state level that offer loan forgiveness to a small number of teachers, nurses, health-care professionals, social workers, military personnel, and federal employees like House and Senate staff. For example, the federal government relieves elementary and high school teachers who teach in high-poverty schools for five consecutive years a total of $5,000 in relief. Americorps and VISTA volunteers receive $4,735 a year for up to two years. Child-care providers in low-income communities are eligible for 100 percent relief from their Stafford student loans after five consecutive years of service.

For Swarthout, this is on the right track, but the government must do more. "We are calling for reforms in loan programs so that students with high debt to salary ratio are able to manage that debt, especially people who want to go into social and public service careers."

On federal, state and municipal levels, some programs have been introduced that aim to prevent debt accumulation in the first place. Using a work-study approach, these initiatives offer to pay for subsidize degree programs in exchange for commitments to public service.

The New York City Teaching Fellowship is one example: Fellows commit to teaching "high need" subjects (high school math and science, special education) to students in a "high need" school district for two years while getting a masters in education from a City University of New York (CUNY) school. They are paid a teacher's salary and receive all the benefits of state employees, and their education is subsidized by the municipal government. In the end, participants end up paying about $5,000 for their education. Response to this program has been highly positive from all sides, and advocates say increasing the availability of this kind of opportunity would encourage more students to enter public service.

Making education free may not solve the problem

As much as it seems like a promising solution, the problem with following a European model and aiming to make school free or extremely low in cost is the potentially adverse effect it could have on the quality of education. Taking away the vast majority of tuition revenues would limit what schools could offer, so for Swarthout, making education free is not the object. He says, "We have the best higher ed system in the world because we have an incredibly diverse range of opportunities that allow access to different types of students and programs. I don't look to other systems -- I tend to consider ways of improving our system."

For some students, there is something in between free and what we currently pay. "I think we could maintain the quality of our universities with a lower cost," says Christina Arnold, a recent University of Pennsylvania graduate. "We could do without such a nice gym."

Daniel Parcerisas Land, a UC Berkeley exchange student from Barcelona, Spain, who also spent a year at the Universite de Paris X-Nanterre, wonders if the vast discrepancy between tuition at European schools and here is justified by the quality of the education. He says, "even though Berkeley was better than my schools in Barcelona and Paris, I don't think it was 4,000 times better."

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