The Debtor Generation

Washington’s attempts to alleviate student debt are in limbo. Now what?

WASHINGTON, DC - JUNE 05: U.S. Sen. Elizabeth Warren (D-MA) (2nd L) speaks as Senate Majority Whip Sen. Richard Durbin (D-IL) (L), Sen. Patty Murray (D-WA) (3rd L) and Sen. Charles Schumer (D-NY) (R) listen during a news conference June 5, 2014 on Capitol Hill in Washington, DC. Senate Democrats held the news conference to discussion college affordability.  
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Fawn Johnson
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Fawn Johnson
June 12, 2014, 5 p.m.

Sen­ate Demo­crats this week failed to garner the 60 votes needed to ad­vance Sen. Eliza­beth War­ren’s le­gis­la­tion to al­low all stu­dent bor­row­ers to re­fin­ance their loans at 3.86 per­cent, the cur­rent fed­er­al loan rate. 

That’s not great news for Samu­al Garner, who owes $200,000 in stu­dent loans and can’t go on for his Ph.D. be­cause he can’t af­ford more debt. Yet, as an AIDS re­search­er with the Henry Jack­son Found­a­tion at the Na­tion­al In­sti­tutes of Health, “there isn’t really any room for me to ad­vance without a Ph.D.,” Garner says. He’s stuck.

So is Kerry Ward, who owes $55,000 and says, “It’s just sit­ting with me, in­def­in­itely.” To make ends meet, he has moved back to his ho­met­own of Barber­ton, Ohio, to run a fam­ily friend’s oph­thal­mo­logy equip­ment busi­ness, rather than pur­su­ing a ca­reer in journ­al­ism as he’d planned. Ward lived with his mom for more than a year to save money.

Both Garner and Ward say they would have made dif­fer­ent de­cisions if they had un­der­stood how much debt they would be fa­cing. Garner says he would have worked part-time at the Uni­versity of Pennsylvania as he pur­sued his mas­ter’s de­gree in bioeth­ics, a choice that would have ex­ten­ded the time it took him to earn the de­gree but would have al­lowed him to take classes for free. Ward says he would have at­ten­ded an in-state school in­stead of an out-of-state private school, Brad­ley Uni­versity in Pe­or­ia, Ill. 

These kinds of con­ver­sa­tions and second-guess­ing are com­mon among mil­len­ni­als, who are cop­ing with his­tor­ic in­creases in col­lege costs. Tu­ition at pub­lic four-year uni­versit­ies has ris­en by more than 700 per­cent since 1980. On av­er­age, a full-time stu­dent paid about $18,000 in tu­ition and fees for the 2013-14 school year, ac­cord­ing to the Col­lege Board. In 1980-81, the av­er­age yearly total for tu­ition, room, and board was less than $2,500, ac­cord­ing to the Edu­ca­tion De­part­ment.

The costs add up. Re­cent gradu­ates talk of delay­ing fam­il­ies, not buy­ing homes, and not start­ing new busi­nesses be­cause they lack the cap­it­al — de­cisions that al­most cer­tainly will neg­at­ively im­pact the U.S. eco­nomy. We just don’t know yet how severe the ef­fect will be. 

And yet, the policy solu­tions for help­ing these gradu­ates only nibble around the edges of the prob­lem. This week, Pres­id­ent Obama ex­pan­ded a 2011 pro­gram that al­lows stu­dents to cap their stu­dent-loan re­pay­ments at 10 per­cent of their earn­ings, which can lower monthly pay­ments for bor­row­ers on lim­ited in­comes. The ex­pan­sion made an ad­di­tion­al 5 mil­lion bor­row­ers eli­gible. To date, however, the pro­gram has been un­der­used be­cause the earn­ings re­ports are com­plic­ated and its eli­gib­il­ity re­quire­ments are con­fus­ing. In ad­di­tion, it ap­plies only to fed­er­al stu­dent loans, so it won’t help the 20 per­cent of bor­row­ers, like Ward and Garner, who bor­rowed from private lenders.

In ad­di­tion, many cur­rent bor­row­ers, par­tic­u­larly those with private loans, have sig­ni­fic­antly high­er rates that they aren’t able to re­fin­ance un­der a quirk of the law — a prob­lem that War­ren’s meas­ure is in­ten­ded to ad­dress. Some fed­er­al stu­dent loans were taken out at 6.8 per­cent. Garner says he pays more than 7 per­cent in in­terest for some of his private loans. (He has sev­er­al.) Ward pays 7.25 per­cent.

Re­pub­lic­ans ob­jec­ted to War­ren’s bill be­cause it in­cluded the highly par­tis­an Buf­fett Rule im­pos­ing a 30 per­cent tax rate on mil­lion­aires, a meas­ure GOP law­makers op­pose on prin­ciple. Demo­crat­ic lead­ers said they were open to oth­er sug­ges­tions to pay for the re­fin­an­cing costs un­der War­ren’s bill, but there was no evid­ence of ser­i­ous dis­cus­sion about a less con­tro­ver­sial pay-for in the weeks lead­ing up to the Sen­ate vote.

The polit­ic­al hype over War­ren’s bill — she has proven a cha­ris­mat­ic and ag­gress­ive crit­ic of big banks — is out­sized com­pared with what the le­gis­la­tion’s ac­tu­al im­pact would be. A bor­row­er with a $30,000 prin­cip­al bal­ance would save $38 a month after re­fin­an­cing, or about $4,000 in in­terest over nine years, ac­cord­ing to the Con­gres­sion­al Re­search Ser­vice. That’s not noth­ing, but it’s not life-chan­ging, either.

For Garner, the abil­ity to re­fin­ance would mean that he could re­move his 92-year-old grand­moth­er as a co­sign­er on one of his loans. Ward says he would feel more com­fort­able talk­ing with his girl­friend about mar­riage and a fam­ily if he could take a little bit off his monthly pay­ment. She has debt, too, and those bal­ances are a con­sid­er­a­tion in their fu­ture. But he ad­ded that his cur­rent fin­an­cial situ­ation wouldn’t stop him from get­ting mar­ried. A lower in­terest rate would just make his life less stress­ful.

Ward was fly­ing blind when he made his col­lege-fin­an­cing choices. He was raised by a single moth­er who brought in mea­ger wages as a fast-food work­er and a bank tell­er. He was the first in his fam­ily to go to col­lege. It wasn’t ob­vi­ous how much he would owe when he was con­sid­er­ing loans after he got in to Brad­ley. “Fin­an­cially, it was prob­ably bey­ond my means,” he says. “I wish someone would have told me.” 

Sen. Marco Ru­bio of Flor­ida is among sev­er­al Re­pub­lic­ans who have said tu­ition and fees should be more trans­par­ent to pro­spect­ive stu­dents, and Obama whole­heartedly agrees. Ru­bio has in­tro­duced le­gis­la­tion with sev­er­al Demo­crats to re­quire uni­versit­ies to make the costs of each pro­gram of study avail­able to stu­dents up-front. Obama has cre­ated an on­line “shop­ping sheet” and a gov­ern­ment-run Col­lege Score­card to al­low pro­spect­ive stu­dents to com­pare prices. 

But those ef­forts are in their fetal stages, and War­ren’s idea is lan­guish­ing. Mean­while, the rising debt levels of 37 mil­lion bor­row­ers have be­come a cau­tion­ary tale for the next gen­er­a­tion of col­lege hope­fuls.

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