College debt is out of control
If you’re a recent college graduate, we don’t need to tell you that student-loan debt is out of control. The average cap-and-gowned entrant to the still-slumping job market is facing mortgage-sized loan payments and educational debts previous generations could barely have imagined. It’s unfair to students and a drag on the economy, and it needs to be addressed before it gets worse.
Today’s graduates have had little choice but to borrow—and borrow big.
As the Great Recession sent state-budget revenues plunging into the red, legislators across the nation slashed funding for higher education, and tuition hikes were the inevitable result. States now spend 28 percent less to support public colleges and universities than they did five years ago, and tuition increased by an average of 27 percent nationwide over the same period.
California students have been hit especially hard. The state, which paid 78 percent of the costs of each student in the University of California system during the early ’90s, now supplies less than 11 percent. Tuition for four-year public colleges and universities has surged by 70 percent over the past five years alone. At the UC, tuition went from about $4,000 annually in 2003-04 to more than $12,000 today.
The result has been an explosive growth in educational debt—a nationwide increase of about 40 percent in just seven years. The average debt now amounts to more than $26,000 for each borrower, and the nation’s total educational debt has reached a staggering $1 trillion—more than the combined credit-card debt of all Americans.
That’s bad for the economy. Even graduates lucky enough to find good-paying jobs often struggle to make their payments, with the result that they are less likely to make big purchases such as homes or cars, a factor economists say is prolonging the recession.
Many simply can’t pay: About 17 percent of student-loan borrowers are in default, and delinquencies are on the rise. Banks wrote off $3 billion in bad loans during the first two months of this year—more than double the amount for the same period last year. If trends continue, the result could be a banking crisis that would further cripple the still-struggling economy.
Fortunately, there are plans in motion that could help turn things around. Massachusetts Sen. Elizabeth Warren’s proposal to set student-loan interest rates at the same rate the Federal Reserve lends to banks—currently 0.75 percent—is a step in the right direction. Even more encouraging, California Sen. Noreen Evans has introduced Senate Bill 241, which would fund higher education in California with an oil-severance tax similar to those that exist in other oil-producing states, and a ballot initiative with the same goal is in circulation.
It’s simply unfair for this generation to have to pay so much more for college than their older brothers and sisters, and unsustainable to rely on larger and larger educational debts to cover ever-increasing fees. We support the efforts by Warren and Evans to reform the student-loan system and restore funding for higher education in California.