With college costs rising and employment prospects for new college graduates dimming, the President is setting out to address the student loan debt crisis in hopes that it will spark the economy. The concept of relieving debt is pretty simple. If the United States can diminish the monthly payments of the millions of citizens who have now acquired more than $550 billion in student loan debt, more money will be available to put back into the economy.
The total amount of outstanding student loans is on track to exceed $1 trillion in the next year and is now more than the total of all outstanding credit card debt in America. The US Department of Education reported that 320,000 student borrowers who entered repayment in 2009 defaulted by the end of 2010, or a 10% increase compared with the year before. With troubling figures such as these accumulating at such an unprecedented rate, a full recovery of the housing market, auto industry, or several other branches of the economy is impossible.
The average student loan debt for a college graduate in 2009 at four-year non-profit colleges was $24,000, according to the Institute for College Access & Success. Pennsylvania, however, with among the highest tuition rates in the country is amassing debt faster than the national average.
Average Loan Debt Statistics for PA College graduates:
- College Graduates, 4-year institution or above – $27,066
- Publicinstitution , 4-year n or above – $26,005
- Private institution, 4-year or above – $28,367
President Barack Obama’s Proposal:
- Moving forward a law that is set to go into effect in 2014 that would drop the monthly payment for loans originated that year to 10% of income and would forgive all debt after 20 years.
- Encouraging graduates with two or more kinds of federal loans to consolidate, giving them an interest rate break of 0.5%
How would this plan benefit the millions of Americans currently struggling to pay back loan debt?
Most will continue to struggle as the policies are primarily geared towards students who will be taking out loans starting next year. Also, in many cases financial aid, scholarships, and federal loans are not enough to cover the full cost of tuition. Students are often left with no choice but to turn to private lenders. By 2008 more than 3 million students had taken out private loans totaling tens of billions of dollars. Unlike credit card debt, private loans are nearly impossible to discharge in bankruptcy and are not eligible for deferment or income based repayment (depending on the lender). Private student loans, a major contributor to the crisis, are going unaddressed.
The concept of forgiving student loan debt entirely has become a national movement and one of several key components to the Occupy Wall Street Protests. Web sites like forgivestudentloandebt.com are exploding in popularity and gaining followers daily through social media networking. Through Signon.org a petition was created to forgive student loan debt that has amassed 643,531 signatures to date. While the government continues to be mostly ineffective at solving the onslaught of economic and financial issues hitting America, talking about ways to address them is a start.
For more information check out: Project on Student Loan Debt or the US Department of Education