Student loans were in the news this week because of a slight recent decline in the student loan default rate. But the relatively good news belies the larger trend of the enormous and growing problem of student loan debt in our country.
There are currently 7 million graduates defaulting on more than $100 billion in student loans. Even with the recent decrease in the default rate, still one in seven are defaulting. For people who go to for-profit schools, the default rate is closer to one in five. That figure also only counts the number of loans that default within three years of graduating – many more default at other times during the lifetime of the loan.
Student debt has impacts far beyond just the graduates who have to pay it off, placing a major drain on the economy. For instance, student debt prevents graduates from buying homes that require them to take on more debt in mortgages, which is costing the housing market over $83 billion per year. That’s at least 414,000 homes that aren’t being bought because of student debt – or about 8 percent of all home sales. The Federal Reserve Bank of New York found that people who have attended college are now actually less likely to buy homes than people who did not.
As with so many social and economic issues, people of color have it even worse. More than 80 percent of black college students have to take out loans, compared to closer to 60 percent of white students. And black graduates owe 22 percent more in loans than their white counterparts. According to a recent study by the University of Wisconsin, “black students face a catch-22. Because they tend to have lower wealth and income than whites do, they need aid to afford college and face larger hurdles to paying it off.” Because black graduates then face more disadvantages in the labor market (with black men and women both paid less than their white counterparts at every education level), “it’s much harder for them to get a good return on their degrees.”
Student debt is even an issue for seniors. The New York Times recently reported about how pervasive student debt has gotten among much older generations, to the point that student loans are being withheld from hundreds of thousands of seniors’ Social Security checks.
There are now 2 million people over 60 who still have student loan debt – triple the rate from 2005. While a few of them have student debt from helping children, grandchildren or spouses go to college, over 80 percent are people who took out loans to pay for their own education and are still paying them off 40 years later.
Elizabeth Warren recently sponsored a proposal that would allow students who took out student debt before July 2013 to refinance at the current lower interest rates. But Republicans blocked the bill, saying things like it was just a “tax increase bill styled as a student loan bill,” that students don’t need taxpayer subsidies (they just “need a good job”), and that student loan forgiveness or reduction only encourages students to take out too many loans. On top of that, they are opposed to the way it would be paid for – by increasing taxes slightly on people who earn between $1 million and $2 million. People who do not have to worry about defaulting on loans.