Student loan crisis threatens the American dream for a generation

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Forget the picket fence. Rising tuitions and official policy fueled a trillion-dollar debt crisis. Could congressional action help?

With $60,000 in student debt, Cameron Vigil does not expect to marry or start a family anytime soon, or even to afford more basic living expenses.

It’s definitely been holding me off on buying a car or getting a house, said Vigil, 21, a Denver resident working on her master’s degree at Regis University. She expects her debt to balloon to $100,000 by the time she finishes her doctorate. I kind of know I have to hold off on that.

With a staggering $1.5tn in outstanding student loans, the United States faces a crisis that has rippled throughout the economy and is getting worse. Nearly two-thirds of 2017 college graduates need to pay back student loans, according to the California-based Institute for College Access and Success, and about 9 million have defaulted.

As the most recent recession led universities to raise prices and sometimes-unsavory, for-profit colleges to take advantage of students, debt mounted at unprecedented rates. Experts worry it will be catastrophic for the economy as a generation forgoes home ownership and other benchmarks of the American dream.

Borrowers who leave college without graduating also leave saddled with debt and a lower ability to get the kind of job they need to swiftly repay it. And Republicans attempts to roll back protections for borrowers introduced under the Obama administration make the predicament even direr.

The federal government’s student loan watchdog, Seth Frotman, left his post last month after abruptly announcing his resignation in late August. In a scathing letter, he accused his boss, appointed by Donald Trump, of using the agency to serve the wishes of the most powerful financial companies in America. As the student loan ombudsman, Frotman was responsible for reviewing borrower complaints about malpractice and aggression by lenders and debt collectors.

People want to go to college because they want a leg up and federal grants and loans are supposed to help them get there, said Debbie Cochrane, a vice-president at the Institute for College Access and Success. We should all be concerned if students are left worse off after attending college.

American student loan debt has swelled by $400bn in the past five years, according to the Federal Reserve, prompted partly by a precipitous rise of college tuitions following the 2008 financial crisis. Budgets at the nations public colleges and universities, as measured in per-student spending, declined by 15% from 1990 to 2015, according to the Century Foundation. But the percentage of instructional costs borne by students and federal aid rather than by state and local governments increased from 25% to 47%.

The average 2017 graduate who borrowed to afford college owed nearly $30,000 upon leaving college, up from less than $13,000 in 1996.

There’s just sort of a splinter in you that you’re trying to put out of your mind, said Reid Setzer, the government affairs director for the advocacy group Young Invincibles, which has pushed for reforms to the loan system. But it is hard to envision a future where you don’t have this debt.

Minority and low-income graduates are hit the hardest: graduates from lower-income families are five times more likely than their higher-income peers to default, the institute reports, and more than one in five black graduates default within 12 years of entering college, damaging the person’s credit score and causing other financial problems. Nearly 60% of college students were from the poorest quintile in 2015, up from 46% in 1990, according to the College Board, which, on the face of it, is good news but tends to leave them more at risk of defaulting on loans later.

Borrowers who default on student loans are sometimes banned from obtaining a drivers license or an occupational license, which makes them less likely to get jobs that would help them repay those loans.

Meanwhile, the Trump administration and congressional Republicans are making it harder for borrowers to argue they were defrauded by colleges that lied about graduates job prospects. The current rules have helped protect students from sometimes fly-by-night private colleges: nearly all of the more than 100,000 borrowers who have applied for federal loan forgiveness attended for-profit schools, Cochrane said.

But some of the blame for the debt crisis comes down to the borrowers themselves, said Keith New, a spokesman for the Pennsylvania Higher Education Assistance Agency, which administers that states student aid.

Financial aid counselors frequently bemoan students failure to explore scholarships and other aid options before turning to loans, which can have high-interest rates and terms that dog borrowers for decades.

There certainly is a financial literacy issue with young folks, New said. They over-borrow and don’t understand the ramifications.

But despite small gains in education funding in many states since the recession ended, debt keeps growing.

At some point, this is going to reach an inflection point that’s going to require congressional action, said Setzer.

Meanwhile, Cameron Vigil is taking her graduate classes online because she and her boyfriend share a car. She works two jobs, she said, and the thought of paying back student loans for decades weighs on her.

Honestly, it sucks sometimes knowing how long I’ll be dealing with this, she said. But it is a sacrifice I’m willing to make.

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