Those of us who have managed to see our children graduate from college without student loans should consider ourselves as lucky as a Powerball jackpot winner. We’ve given the next generation the best present ever: a debt-free launch into adulthood.
About 40 million Americans are not so fortunate. Many of our best and our brightest are burdened by loan payments that are slowly bleeding them at a time when they should be establishing the kind of strong financial foundation that we, their parents, were busily building at the same age.
Mention student loans, as the news media have consistently done this week, and I think of the young lady in public relations who confided she owed more than twice her annual salary in student loans. Or the newly minted lawyer who expects to be paying down college debt well into middle age. Or the couple forced to live with her parents as they dig out of a six-figure financial millstone.
Almost 60 percent of the 20 million Americans who attend college each year borrow to help cover costs, according to The Chronicle of Higher Education. Estimates put that debt at an all-time high of $1.1 trillion, larger than the onetime bogeyman of credit card debt. During the first quarter of this year alone, student debt increased by $31 billion, and that’s 12 percent higher than a year ago. No wonder experts are calling this the next economic bubble.
Sign Up and Save
Get six months of free digital access to the Miami Herald
And while it’s encouraging that people are willing to invest in their future — college grads out-earn those without a sheepskin — student debt is a drag on other parts of our economy, a not-insignificant detail that should concern everyone, not just students and their parents. If you owe tens of thousands of dollars, you’re less likely to purchase a car, buy a house, invest in the stock market, save for retirement, get married, start a family — all pistons in the engine of our economy.
This partly explains why, two years out of college, half of graduates in a just-released survey are relying on their parents or other family members for some form of financial help, according to research from the University of Arizona. Even among those who have full-time jobs, many still rely on their families for some form of support.
Earlier this week, President Barack Obama announced a plan to help more graduates pay down student debt by expanding an existing loan-repayment program. The new plan will allow people who took out loans before October 2007 to reduce the amount they pay by capping repayments at 10 percent of their income.
Only 10 percent of student loan borrowers, however, qualify for this expansion. Most graduates yoked by student debt, especially those with loans from the private sector, are left with few options.
Tackling the biggest economic threat facing the millennials demands better public policy than what Obama has offered. It will require compromise in Congress — perhaps closing tax loopholes for the wealthy to finance cheaper loan rates — and strict cost control at campuses.
It will also require support at the state level — legislatures investing in public universities, not cutting their budgets — and more students recognizing that certain professions, no matter how noble, cannot be financed with untenable loans. I meet too many graduates whose long-term salary potential will never justify the debt they accrue in college.
We all seem to agree that an educated workforce is required to stay globally competitive. But what good are college graduates who can’t afford the most basic essentials that spell financial independence?