Explained: The systemic problem of student debt in the UShttps://indianexpress.com/article/explained/explained-the-systemic-problem-of-student-debt-in-the-us-5740283/

Explained: The systemic problem of student debt in the US

Here are some answers to your questions about student debt, and a look at how the issue is increasingly a topic of debate in national politics.

Explained: The systemic problem of student debt in the US
Graduates react after hearing billionaire technology investor and philanthropist Robert F. Smith say he will provide grants to wipe out the student debt of the entire 2019 graduating class at Morehouse College in Atlanta, Sunday, May 19, 2019. (AP/PTI Photo)

Written by Dana Goldstein

On Sunday, Robert F. Smith, a billionaire investor, shocked and delighted the 396 graduates of Morehouse College when he pledged to repay their student loans. The gift, which was praised for its potential to transform the life of each recipient, is also focusing attention on a systemic problem that one donor’s generosity cannot solve: the large student debt burdens shouldered by tens of millions of Americans.

Here are some answers to your questions about student debt, and a look at how the issue is increasingly a topic of debate in national politics.

How many college students hold student loan debt? And how much debt do they have?

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About two-thirds of seniors at four-year colleges hold student loan debt — an average of $28,650 per person in 2017, according to an analysis of federal data from the Institute for College Access and Success, a nonprofit that advocates affordable higher education.

How have those numbers changed over time?

Debt has risen significantly. The average debt burden for a senior at a four-year college was $12,750 in 1996, adjusted for inflation. At that time, only 58% of graduates held student debt.

Where does the money come from?

The vast majority of the loans come from the federal government. Private loans, which account for 14% of the market, are riskier and more expensive for borrowers.

What are the interest rates for federal student loans?

Currently, between 5% and 7.6%.

Are there racial disparities in student debt loads?

Yes, and that makes the Morehouse gift especially significant. Recent black graduates of four-year colleges owe, on average, $7,400 more than their white peers, according to research from the Brookings Institution. Four years after graduation, they still owe an average of $53,000, almost twice as much as whites.

Students at historically black colleges, like Morehouse, are also more likely to take out loans than other students, in part because black parents have less wealth to help pay for their children’s educations.

Which students are most likely to default?

Not the Morehouse graduates. Some of the biggest default risk is on those who attend certificate programs at for-profit colleges — such as in cosmetology or health — and to those who drop out of such programs.

About half of undergraduates who entered for-profit colleges during the 2003-04 academic year had defaulted 12 years later, compared with 12% at public colleges and 14% at private, nonprofit colleges.

In that same group of students, regardless of the type of college they attended, 11% of those who completed their certificate or degree defaulted, compared with 23% of those who dropped out.

Does bankruptcy discharge student loan debt?

Not always. The borrower must file a separate motion in court called an “adversary proceeding” and demonstrate that repaying the loan would cause “undue hardship.” The court makes the final determination.

What are Democratic presidential candidates saying about student debt?

Have you heard of Wayne Messam? He’s the mayor of Miramar, Florida, and he entered the Democratic presidential primary in March with a promise to wipe out every cent of the more than $1 trillion of student debt in the nation — whether the borrower is a wealthy surgeon or a working-class nursing assistant.

Among the better-known candidates, Sen. Elizabeth Warren has the furthest-reaching plan. It offers up to $50,000 of debt relief to those earning under $100,000, and would repay a percentage of that, on a sliding scale, for those earning between $100,000 and $250,000. The plan would also increase federal funding for historically black colleges. Warren would finance her plan with higher taxes on corporations and the wealthy.

A major criticism of such a plan is that it would benefit the wealthy along with the middle class and the poor. During a CNN town hall last month, Sen. Amy Klobuchar of Minnesota, who is also running for president, argued that the Warren approach was unrealistic. Her plan would allow students to refinance their loans at lower interest rates.

What is President Donald Trump’s record on student debt?

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The Trump administration has rolled back Obama-era regulations that were meant to protect student borrowers, particularly those who attended for-profit colleges. Last year, Trump proposed a budget that would have eliminated a student loan forgiveness program for those in public service careers, but Congress did not pass the measure.