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A Growing Problem for All Families: Student Loan Debt

Today college graduates face crippling amounts of student loan debt.

Jessica Camacho is a policy intern at the AFL-CIO headquarters in Washington, D.C.

As a low-income and first-generation college student in my family, the subject of student loans has been a matter of acute concern to me. High school counselors constantly told me that student loans are “good debt.” This type of information made it justifiable for peers in similar socioeconomic situations to borrow federal and private loans. But lenders take advantage of first-time borrowers by failing to explain in full detail future payment plans, which may cause individuals to be fiscally unprepared for post-graduate life. Current student debt trends must be fixed in order to stop setting up graduates for a lifetime of financial struggles.

While the nation engages in debate about the country’s financial future, the topic of student debt must be recognized as an important issue and for its potentially crippling impact on the lives of young college graduates and its drag on economic recovery.

Young workers think of student loans as “good debt” because in the long term they will pay it off provided they secure a stable job. But between graduation and landing a secure job, college graduates are expected to pay off loans that are not in sync with the reality of the job market. The average student debt in 2011 was $23,300, according to a report by the Federal Reserve Bank of New York.

Recent college graduates step into a bleak job market. The Economic Policy Institute reports that the unemployment rate for college graduates was 9.4 percent in 2011, while the underemployment rate was 19.1 percent. Some one in five college graduates find themselves in a job without sufficient hours, while about one in three is either looking for work or employed part-time. In addition, according to a recent Rutgers study, 43 percent of college graduates report working jobs where no college degree is required, meaning they are over-qualified but must take the jobs anyway.

On top of facing scarce job prospects, college graduates must pay off student loan debt, which often comes due before they find secure employment. Graduates who are unable to pay off student loans face severe consequences, especially with private loans. Meanwhile, the lack of substantive regulation in private lenders’ repayment plans, interest rates and collection processes increases the risk of defaulting loans.

The stagnant job market and student debt college graduates face cripple their financial choices in the short term and long term. They put off major purchases such as cars and homes. An income-based repayment program for federal loans was recently institutionalized to combat defaults on federal loans, but more must be done to help families facing the rising costs of higher education.

More importantly, student debt is no longer a concern reserved for students from upper-middle-class households; low-income students are facing similar, if not greater, adversities. Often low-income students do not have college savings to draw from for school payments. When affordable options like public universities lose funding, tuition rates increase and grants are reduced, leaving low-income students to rely on loans.

Rising tuition and the loss of public funds to help students finance their educations means that more students must borrow more money in order to attend college—something that was once a luxury but is increasingly a necessity in the modern economy. Federal and state governments need to take real action to reduce the costs of higher education by making tuition more affordable and loans less burdensome—and make sure that we have good jobs when we graduate—so that everyone has access to education and the upward mobility it can provide. 

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