Student Loans

 
 
 
 

Vocabulary

loan	ongoing	correspondent
debt	escalate	commencement
toll (2)	mint (2)	weigh down
tally	overhang	preponderance
rite	legislate	ball and chain
owe	part-time	promissory note
choir	furlough	make ends meet
peer	soar (2)	working tables
burden	restrain	take on a load
award	collateral	down payment
default	deferred	pay attention
factor	make sense	orientation (2)
wary	crash (2)	prerequisite
terms	subsidy	overreaction
option	massive	beg to differ
tuition	clash (2)	interception
extent	congress	garnishment
barely	restructure	advocate (2)
put off	prestigious	discharge (2)

 
 
 
 
 

Video

 
 
 
 

Transcript

And now the first of two reports on the ever growing student loan-debt problem.

News Hour Economics correspondent Paul Solman tallies up the larger toll it’s taking, and what it means for new graduates.

It’s part of his ongoing reporting, “Making Sense of Financial News”.

America’s age-old academic rite of spring: commencement.

Degree in hand, graduates are about to begin real life and the world of work.

What’s different these days is the cost of that degree.

And the extent to which it’s been financed with debt.

Americans owe $700 billion in car loans; more than $800 billion on our credit cards . . .

But student debt now tops $1 trillion.

And it’s not just weighing down the 37 million former students who owe it — but the whole economy.

Here’s economist Paul Krugman in a recent public interview: “The preponderance of the evidence is that the biggest, single factor keeping us where we are, keeping us in this depression is the overhang of debt.”

And student debt we asked him a few days later.

“Household debt is the ball and chain on this economy, and student debt is a big part of it.”

But how you might wonder, could people like Ricky Evan, aged 32, who works in finance in the DC area, and earns upwards of $70,000 a year, still have student loans of more than eighty thousand.

Ricky Evan: “Honestly, back then I barely understood interest rates.”

What about 27 year old teacher, Beth Hansen. In addition to working full-time at a Maryland middle school, she now works two other part-time jobs running an afterschool book club, singing in a church choir — and yet earned only $46,000 total last year, while still owing more than $60,000.

She’s now looking for a waitressing job to make ends meet, working tables after teaching seventh and eighth graders all day.

Did she understand the load she was taking on?

Beth Hansen, Middle School Teacher: “I think how old was I when I signed my first promissory note? Seventeen? Am I really going to read said promissory note from beginning to end?

Journalist: “Or understand it?”
Beth Hansen: “Or understand it, even if I had read it.”

Mark Kantrowitz, Finaid.org: “Most students will sign whatever promissory note is presented before them. And they won’t pay attention to it.

Mark Kantrowitz is a financial aid expert.

Mark Kantrowitz: “There’s no one out there telling them don’t borrow too much.”

Daniel Haptemariam, 28, a medical statistician who had attended the Krugman event, says student debt is depressing pretty much everyone he knows.

Daniel Haptemariam, Medical Statistician: “I know for myself, as well as many of my peers, we’ve put off major life decisions…put off having children…putting off buying a house…

My peers don’t have enough revenue. They don’t have enough income, security, enough confidence in their future income.”

Journalist: “And the overhang of debt is restraining them?”

Daniel Haptemariam: “It’s a terrible burden — yes.

Beth Hansen is typical.

Beth Hansen, Middle School Teacher: “I live in a one-bedroom apartment. And it’s the cheapest one I can find. But it’s still 35% of my monthly income. That also makes it so much more difficult to pay off my student loans, and thinking about my future with my fiancé.

Now are we going to be able to buy a house?

NO!

Because I have no money in the bank. There’s no money for a down payment. There’s no collateral.”

The standard loan contract allows anyone who cannot pay, like Hansen, to put off payment for years . . .

. . . But the amount owed rises in the meantime, as the deferred interest is added to the total bill.

Meanwhile, since the crash, many public employees have seen their earnings decrease.

Beth Hansen, Elementary Teacher: “I’ve been making less each year because they’ve furloughed us one year, and this year they’ve increased the amount that I’ve had to pay to my retirement.

So I’ve gotten a 2% pay decrease.

And I don’t know what they’re going to do next year, but there’s certainly been no cost of living increase for years.”

Four years after graduating, Hansen has just started making loan payments: $468 a month.

To cover it, she’s interviewing for that waitressing job.

Will she ever pay off her loans?

Beth Hansen: “I may die first.

In which they would need a copy of my death certificate to finally cancel my loan.”

Judith Scott-Clayton, Economist, Teachers’ College, Columbia University: “College is a very good investment.”

Economist Judith Scott-Clayton studies higher ed.

Judith Scott-Clayton, Economist: “Your level of education is the single biggest predictor of your lifetime earnings — that you can control, that you can do something about.

And so it makes a lot of sense to borrow, to finance this investment that’s going to pay off the whole 30, 40 years that you are working.”

But tell that to recently minted BA’s in the job market of the past few years, whose reality has clashed with the pretty picture painted during orientation week.

Beth Hansen, Middle School Teacher: “They tell you, ‘oh, you’ve made such a good decision, by joining our family, this is going to pay off so well in your future. Our graduates have received this award and that award, and they’re prestigiously employed at “X” and such.’

And so clearly you think that’s going to happen to you as well.”

So students borrowed money.

From the government…or private lenders…each with different terms, interest rates and payback options.

The students tended to ignore the total tab — or even what’s called the “opportunity cost”: the income they might have earned if they hadn’t gone to school.

Now the next generation sees that happened — and may become wary.

But a frightened overreaction is also a risk says economist Judith Scott-Clayton.

The risk is that if they decide not to go because they are afraid of taking out debt, they may actually end up in a worse situation than if they had decided to go.

Now one reason why student debt has surged past a trillion dollars, 80% of that owed to Uncle Sam, is that colleges has become increasingly expensive.

But the CATO Institute’s Neal McCloskey, argues that’s because of student debt: financed by government loans.

Neal McCluskey, CATO Institute’s Center for Educational Freedom: “The massive inflation we see in tuition in college prices have gone up faster than health care, gone up faster than almost any major industry.

Well that’s a product, in large part, of Federal Student Aid: If you give someone a hundred dollars, you tell them that they have to use it for college; colleges know they have it.

Of course they’re going to raise their prices.”

The government begs to differ.

Martha Kanter: “Federal subsidies are not the reason college costs have escalated.”

If government aid drives tuition, says Under Secretary of Education Martha Kanter, how come prices are rising fastest at state schools?

Martha Kanter, Under Secretary, U.S. Department of Education: “Just last year, if you look at states, over 80% of states dramatically cut American higher education. Institutions of higher education raised tuition when that happens.”

But no matter who’s responsible, soaring tuition means soaring debts, mean more defaults.

And that’s very bad news, says Mark Kantrowitz.

Mark Kantrowitz, Financial Aid Expert: “When someone defaults on a student loan, it’s like a trip through hell, in all the negative things that occur: the garnishments, the interception of your income tax returns, your credit is ruined.”

Moreover, unlike credit card and other borrowing, Congress has legislated that you can’t even escape student debt through bankruptcy.

Robert Applebaum is an advocate for student loan reform.

Robert Applebaum: “Not only can you not go to Chapter 7 bankruptcy, which is a discharge of your debt, you can’t go to chapter 13 bankruptcy, which is just a restructuring of your debt, so essentially refinancing.

You go into massive amounts of debt just to get an education you need as a prerequisite to get a job. And you spend the rest of your life paying off that educational debt.

There’s got to be a better way.”

The policy question then that hangs over the trillion dollar student debt overhang: Is there a better way?

And if so, what is it?

Questions

1. Is there a big difference when students attend university and graduate; and when they enter the “real world”?

2. What debts does the journalist mention? What do the following numbers stand for? $700 billion, $800 billion, $1 trillion, 37 million. Do debts influence the economy?

3. Former university students can easily pay back students loans because they have good, well-paying jobs. Is this always the case (true)?

4. Did they understand the terms of agreement on the student loan contracts? Did they fully understand what they were signing? What was the biggest surprise for them?

5. Student debt has a profound influence on people’s lives. Is this correct or wrong?

6. Is everyone lamenting and complaining about student debt? How does the economist Judith Scott-Clayton she feel about it? What is her stand?

7. Students have been told a rosy (overoptimistic) picture about university education. True or false?

8. There is a single reason why university education have become very expensive. Yes or no? What are some of the reasons given by the experts? Do they reflect political views?

9. There will be no consequences if people default on their student loans. True or false? Can people simply default on their college loan?
 
 
A. Is there a student debt problem in your country?

B. How expensive is university education? How do students finance their education?

C. Why is there a problem with student debt? Does everyone feel they have to attend college?

D. Is there a glut or oversupply of university graduates? Do they do jobs that do not require a four-year college education?

E. Do you think there is a conspiracy by universities and the government?

F. What will happen in the future?