by Dominik Wurnig
Mike Ward’s $60,000 in debt weighs him down.
To pay for his degree in conflict resolution at the prestigious Columbia University in New York, he had to take out government loans.
Since starting to pay off the debt six months ago, the 28-year-old has not been able to reduce his debt substantially. His monthly repayment is $150. His modest salary at a nonprofit organization doesn’t allow him to pay any more.
Ward is among the 39 million Americans with debt related to their education. The total amount of student debt has reached a record $1.2 trillion, according to a speech by an official from the Consumer Financial Protection Bureau on Wednesday.
The debt total is escalating at warp speed. Since 2006, the amount has doubled. In the class of 2013, 70 percent borrowed money, according to a recent survey from Fidelity financial services. On average, each one owes $35,200.
Student loans show no mercy. Unlike regular loans, they can’t be flushed away by declaring bankruptcy. In addition, credit will become more expensive for students entering university or college in the fall of 2013. With the beginning of July, rates for government loans doubled to 6.8 per cent.
While President Barack Obama and the opposing Republicans wanted to stop the increase, they couldn’t agree on new legislation. The advocacy group “Young Invincibles” said it means every year of college could add up to another $1,000 in interest payments over the life of the loan.
Interest alone does not account for the $1-trillion debt. Rising tuition is the main culprit.
Unlike in most Western countries, the US higher education system is mostly private. American universities are among the best in the world but also among the most expensive in tuition.
According to the College Board Advocacy and Policy Center, which tracks financial matters in education, an undergraduate student in 2012 paid on average $29,000 in tuition for one year of private university or college – an increase of 26 percent in the last ten years.
Tuition costs for state-run public universities saw an even greater rise – 66 per cent – in ten years, to $8,700.
It’s a “Catch 22”-situation for today’s teenagers: Borrow thousands of dollars to hopefully land a well paid job one day; or face the higher risk of unemployment without higher education.
The soaring debt undermines the American dream to own a house – a vision that recedes into the far distance. A study by the Federal Reserve shows that fewer 30-year-olds who held student debt at some point can afford houses.
“We hear from young people that they are delaying the decision of large ticket purchases like cars or house,” said Jen Mishory of Young Invincibles.
The rising student debt thus can undermine economic recovery, experts said.
“Student debt also is a drag on the slow recovery that began in 2009,” wrote Nobel laureate economist Joseph Stiglitz in a recent op-ed for The New York Times.
“Those with huge debts are likely to be cautious before undertaking the additional burdens of a family. But even when they do, they will find it more difficult to get a mortgage,” he said.
As for now, Mike Ward is hardly in a position to contribute much to overall spending that would help boost an economy that relies on 70 per cent consumer spending.
His monthly payment is scheduled to increase later this year.
“With the loan going up I will not be able to do many things,” said the New Yorker. “It is lot of money every month.”