Student debt exceeds $1 trillion dollars, taking heavy toll on millennials

Total outstanding student loan debt – both federal and private – exceeds $1 trillion dollars, increasing at a rate of approximately $2,852.88 per second. If the economy is beginning to turn around, why won’t outstanding student loan debt improve as well? 

1. Rising college costs. According to the College Board, tuition and fees at public universities have surged almost 130% over the last 20 years, while middle class incomes have stagnated. The decline of the middle class in the U.S. in recent years has had an effect on young people wanting to pursue a college education. With extensive layoffs, foreclosures, and bankruptcies, parents are finding it harder to put their children through college, forcing students to take out loans to finance their education. 

2. Lack of understanding Many 18-year-old seniors in high school are focused on whether they are going to the best school, or a Big Ten school, or a party school, but they aren’t worried about finances. Many high schoolers can’t grasp, or simply aren’t informed of the extent of their student loans and what repayment looks like. According to a study by NERA Economic Consulting: “When talking about specific aspects that they misunderstood or found surprising, about 20 percent of respondents mentioned their repayment terms, 20 percent mentioned the amount of their monthly payments, and 15 percent mentioned their loans’ interest rates.”

High school seniors are bombarded with advertisements and misleading incentives by private lenders. While borrowers carry a lot of the responsibility for incurring large amounts of debt, it is difficult to hold kids solely accountable for missteps in financial planning. Policymakers should safeguard against predatory private lenders with astronomical interest rates and educate high school seniors about financing their college education and financial planning.

3. Alternatives aren’t heavily promoted. Many students are unaware of how to get an education cheaply, or free. Taking prerequisites at a community college and transferring into a university can drastically cut tuition bills. There are tuition-free schools such as Cooper Union and College of the Ozarks that offer free tuition in exchange for work. Programs like Teach for American or AmeriCorps provide tuition reimbursement stipends. But, many students are unaware of programs like these until they are close to college graduation and are looking for ways to pay off their loans.

4. Interest rates are increasing. Beginning July 1, the federal loan interest rate is set to double, rising from 3.4% to 6.8%. The College Cost Reduction and Access Act, which was passed in 2007 to encourage increased college attendance through reduced interest rates expires this summer. This translates to an additional $2,800 a year. For recent college graduates in entry-level positions, this can be a daunting figure.

5. Increased retirement age. The average retirement age has increased to 64 for men and 62 for women. The recession has impacted all age groups of society. The housing and credit collapse claimed many Americans' credit and savings, including retirement funds. Many are finding they have to put off retirement later in order to have a bit of security in the future. This leaves dismal job prospects for college seniors and recent college graduates, as the elderly population is staying in the work force longer, disrupting the normal cycle of job exchange. 9.4% of those holding bachelor degrees under the age of 24 are unemployed, extending deferment of loans, and thus the amount owed is continually compounded to the principal each month.

The ‘Great Recession’ has taken a toll on millenials: Average amount of student debt is up 54% from a decade earlier. Default rates have reached 8.8% in 2009, nearly double that of five years earlier. The unemployment rate for those aged 16 – 24 with bachelor’s degrees is up to 9.4% this year, compared to 4.6% in 2008. About 60% of recent graduates have not been able to find a full-time job in their chosen profession.

While some of these figures are surely to go down as the economy continues to gain momentum, it is not unreasonable to postulate that outstanding student debt will follow suit. Those graduates in recent years have suffered significantly as a result of the recession and the aforementioned claims.

According to a study conducted at Columbia University, the drag a recession has on income lasts on average for 10 years, but we haven’t had such a strong recession since the Depression. It could take longer to get earnings and a career back on track.

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Jennifer Moore

Jennifer Moore is a Master's student studying International Relations at the City College of New York. She received her BA in Political Science from Fordham University.

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