Student Loan Debt and Forgiveness

Portfolio Paper: Student Loan Debt and Forgiveness Justin Puckett 5/17/2012 Public Administration: PMG300 Colorado State University Global Campus When it comes to achieving success in the work force and finding a fulfilling and lucrative career there are few things more important that higher education. Going to college and getting a degree is essential in finding success in the work force. The problem is when the cost of gaining that degree outweighs the financial compensation the career that follows is able to supply. Very few people are able to pay for college out of pocket.

The result of this is that students seeking higher education are forced to take out massive student loans.

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This means that they are entering the work force after college already thousands of dollars in debt and under water. Outstanding student loan debt topped $1 trillion dollars last year. (Block) This figure is now exceeding the total amount of credit card debt in the U. S. Thousands of borrowers are now forced to postpone important life events such as getting married, buying a home or having children until their debts are paid off.

Defaults on loans are rising, which typically leads to larger loan balances. This problem is not limited to young adults. Many student loan borrowers are older adults who went back to school to finish or gain a degree that they put off due to various life events. Others are parents who co-signed loans for their children because they were unable to afford college out of pocket. There’s widespread agreement that student debt is a problem, but there’s little consensus on how to go about solving the issue.

The average undergraduate student leaves school today owing nearly $29,000 and graduate students leave owing about $44,000.

(Heavey) Interest rates on subsidized federal Stafford student loans, one of the primary loan options available to students, are set to double on July 1st 2012 unless Congress steps in to prevent it. Recently Senate Republicans blocked a bill backed by the White House that would end a tax break for the wealthy to fund an extension of the lower rates on student loans, paving the way for possible compromise.

Educators and policymakers also are looking for new solutions to a mountain of student debt. The student loan debt crisis affects everyone. This issue is not only the problem of the students accruing the mountains of debt but also educators, policy makers, and politicians as well. With the rising cost of education and the notoriously low pay for educators in this country, a teacher shortage has already begun to surface.

The average salary for a high school teacher in the U. S. s $43,697 and $40,243 for elementary school teachers. (PayScale) With yearly incomes as low as this, many aspiring educators are giving up on their dreams in this career field because they know they will be unable to pay off their student loan debt for years to come. With a November 6 presidential election approaching, both President Barack Obama and his presumed Republican challenger Mitt Romney have targeted mounting student loans as a growing problem for American families and the struggling U. S.


Without government intervention and support on behalf of the public administration the problem of student loan debt will continue to grow out of control and undermine the education system and economy of the nation. The growing student loan debt crisis is not only the problem of the students seeking their degrees. Parents of students attending college are being forced to co-sign for student loans in order to help pay for the rising cost of their children’s education. For many of these parents this is a financial burden that puts them in an incredibly difficult position.

This has a hugely negative impact on the nation’s economy in general.

Politicians and political leaders are also very involved with the discussion of what to do about this issue. The President recently put forward an idea that even his presumptive Republican presidential challenger Mitt Romney appears to agree with: Cuts to federal student loan interest rates cannot be allowed to expire on their July 1 deadline. (Greene) This has become one of the foundation points for both candidates in the upcoming 2012 presidential election.

If legislators do not come together and agree on a solution, federal Direct Stafford Loan interest rates will double from 3. 4 percent to 6. 8 percent on July 1.

The President argues that allowing these interest rates to double would be an enormous blow and probable deterrent, to people seeking a higher education. A rate increase such as this would compound problems for the younger portion of the nation’s population. The Associated Press reported recently that in 2011, 53. 6 percent of people under the age of 25 who hold bachelor’s degrees were either jobless or underemployed.

This is the highest such rate in 11 years, and corresponds with a consistent slide in median wages for college graduates since 2000. In Congress, Democratic Reps.

Gary Peters of Michigan and Joe Courtney of Connecticut have introduced legislation to keep the Stafford interest rate at 3. 4 percent however, some politicians like Minnesota Rep. John Kline contest that extending these cuts to the Stafford rates for just one year will cost the government an estimated $6 billion. (Greene) Some also argue that even if rates were allowed to double to 6. percent, that interest rate would be less than some private student loans.

As an adult student who has gone back to school in order to complete my degree so that I may better provide for my family this issue is very important to me. I have been taking out student loans in order to pay for my education and have accrued a large amount of student loan debt. I am still several years away from graduating because I am only able to attend school part time due to the fact that I work full time and have a wife and two children to care for.

A rate increase like the one being discussed would make paying back my education loans next to impossible. This is a concern I share with thousands of people.

There are things being done at this time in order to help prevent default on these loans and promote continued education. Recently more than 100 people demonstrated against the lending practices of student loan company Sallie Mae outside its headquarters in Newark. The protesters criticized the heavy debt burden that students accumulate during college and what they say are unfair profits made by Sallie Mae. Associated Press)

Possibly in response to such criticism, Sallie Mae announced that it will offer fixed-rate loans for the first time ever to help students and their families pay for college. Private lenders are also attempting to step in with the impending rate hike on federal student loans. As stated before, the largest student lender, Sallie Mae, introduced fixed-rate loans.

On May 21 2012, Discover Student Loans which is the third-largest education lender started a fixed-rate loan program as well. Wells Fargo which is the second-biggest lender launched fixed-rate loans last summer. Weise) For prospective students who have good credit these private loans can have an interest rate as low as 5. 75 percent. This rate is a full point lower than the 6.

8 percent for unsubsidized federal loans if the increase goes through. Another less popular option is to examine bankruptcy reform. The current U. S. bankruptcy code has the ability to offer financially distressed individuals and businesses an opportunity to expunge their debts.

But this “fresh start” is not an option for most borrowers with student loan debt.

In 1998, Congress enacted legislation that prohibits borrowers from discharging federal student loans in bankruptcy unless they could prove “undue hardship. ” In 2005, it extended the standard to private student loans. Bankruptcy attorneys have stated many times that this standard is nearly impossible to meet. (Dugas) Rep. Steve Cohen has sponsored a bill that would undo the 2005 change in the bankruptcy code that prohibits private student loan debt from being erased.

Sen. Dick Durbin has introduced a similar bill in the Senate. A factor that has compounded the education debt problem has been rising tuition costs.

In the past five years , a period when many families saw their household income stagnate or decline , the average published cost of tuition and fees at a four-year, public college or university saw an increase of more than 33%. This enormous increase in college costs has forced students to take on larger levels of debt than normal.

(Block) In his State of the Union address, President Obama proposed reducing federal aid, such as Perkins loans and work-study jobs, to colleges that fail to rein in tuition increases. “Let me put colleges and universities on notice,” Obama said. If you can’t stop tuition from going up, the funding you get from taxpayers will go down. ” Schools that keep tuition rates at an affordable level would receive more aid under this proposal.

The newest federal student loan repayment option open to graduates with a federal Stafford loan, graduate PLUS loan or consolidation loan is an Income-Based Repayment plan or IBR. Income-Based Repayment is available to all federal student loan borrowers, whether they are finishing school now, or have been in repayment for years and have recently fallen on hard times.

Gee) An IBR caps loan payments based on what the borrowers earnings are and their family size. The payments can be as low as zero if the individuals income is very low, and if their income is high, the payments are guaranteed never to exceed 15 percent of the income. In this plan after 25 years of payments that are based on an affordable share of the borrowers income, the rest of the debt is forgiven. This program is designed to help people who can’t afford a ten-year payment plan, and prevent them from cutting into their basic needs. (Lako) Under provisions in The Health Care and Education

Affordability Reconciliation Act of 2010, borrowers of federal student loans after July 1, 2014, will pay just 10 percent of their income to student loan payments, with any remaining debt forgiven after 20 years. A final and extreme answer to this issue is clear although not a popular one among many Americans.

Like Canada, Germany, Australia, Japan, and several other countries America needs to adopt a socialized higher education system. In these countries systems higher education programs are paid for or subsidized by taxpayer dollars ranging from 100% to 50%.

Many opponents of the movement to socialize higher education in the United States overlook the fact that in grades k-12 we have already adopted the practice. (King) The countries that have adopted this method are far surpassing the United States in many areas. Their young adults entering the work force are significantly better educated than those in the U. S.

who are unable to afford college. In these countries attending university is paid for by the government with tax dollars. This in turn means that a great deal my of the population seeks higher education and attains degrees.

By doing this they are better equipped to get a higher paying career which, in turn, enables them to pay the higher government taxes so that the country can continue to have free higher education. This theory is sound and proven in many countries.

The problem is embracing and adopting a socialist approach. The U. S. has been wrestling with this issue in health care for some time now. Opponents to the socialization of health care and education are looking at it from the point of view that they do not want to pay the higher taxes and they do not want the government to control these parts of their lives.

Weston) What they fail to see is the cycle addressed above. They are only looking at the short term and fail to see the long term benefits. As we do not appear to live in a country where a “good of the many outweighs the good of the few” mentality will ever prevail I feel the best program for attempting to quell the rising student loan debt in America is the Income-Based Repayment plan or IBR. In many ways this is a compromise between socialized education and traditional pay as you go methods.

In this the borrowing student is able to achieve their goal of getting a degree and being able to enter the work force armed with the necessary tools to get a reliable, well-paying career while knowing that they will not be in a situation where paying for their education will take up all of their resources for the next 50 years. The government will not be completely responsible for the cost of educating its citizens but will at least help cover some of the bill.

People can go to school and have the quality of life they had hopped getting their degree would supply.

I believe under programs like this a great deal more people will attend college increasing the education level of our nation and helping to get us caught up with the rest of the power countries of the world.