The School Loan Debt Crisis in America

The school loan debt crisis is changing the way Americans think about college education and debt. Most people go through life wanting their kids to go to college after high school graduation, saying; 1) I will save the money for my kids’ college, or 2) My child will get a scholarship, or 3) There is adequate financial aid available. The shock comes when none of these scenarios become reality.

I will address why many low income and middle income students and families, are met with a school loan debt crisis, as a result of not doing their homework before deciding on a college.

You can read many articles that tell you when your baby reaches college age, college cost will triple or quadruple. But, does anyone really listen to those estimates? Currently, we are experiencing a college school loan crisis in America. There are many reasons this crisis exist, and the problems keep getting worse. Most of the school loan problems exist because, both parents and students don’t understand; 1) College Cost, 2) Financial aid Has Limits-No Matter What Your Income, 3) Most Scholarships Have Income Limits.

The average total college costs can range from $50,000(public college) to $400,000(private college). If you are wealthy, this is not a problem. The problem is that most Americans are not wealthy. Most Americans have moderate income compared to the average college cost. As a result of these outrageous costs, low and middle income students are taking out school loans far in excess of what they can afford to pay off as graduates. Many families are of the mindset that, “If you couldn’t afford to pay the loans after graduation, they would not give them to you”. Not so fast, the statistics suggest otherwise. According to studentdebtcrisis.com, there are 40 million people with school loans, 7 million people are in total default, and half of those in default are students from for-profit corporate colleges. The for-profit corporate colleges are the ones that advertise on television non-stop. There are an additional several million struggling to make monthly payments or on the cusp of default, because of the school loan debt crisis.

There are many reasons why many four year college degrees cost far in excess of their net worth. For example, is it really worth it to attend a college that cost $200,000 for a $40,000 job? The general rule is, your school loans should be at least $10,000 less than your total loan balance after four years of college. That means if you want to be a school teacher, you better figure out how to take the minimum in school loans, like say $10,000 to $15,000 in school loans. I spoke to one woman who told me she was shocked at how much her daughter was making when she became a teacher. She literally spent her entire paycheck (for 4 years of college) as well as money she and her husband saved for her daughters’ college, to pay for her college. Then, she saw her teacher salary paycheck and asks her daughter, “Is this a joke?” Her daughter replied, “No Mom that is my actual paycheck”. If her daughter had school loans, she would not have been able to pay them, with that tiny paycheck. Another example was a young girl I spoke to who told me she owes $73,000 in school loans and her first job is $40,000 in a high price city. The only reason she can afford the payments is because of a program started by President Obama to keep college students from defaulting on their loans. If you work for certain agencies, like the government, police, or other public servant jobs, you can pay 10% of your income as your school loan payment. If you don’t miss a single payment for 10 years, all else is forgiven. One reason there were so many openings at government jobs is because the starting pay is below most major private industry jobs. This is win-win situation, the college student can pay their loans and the government gets employees. The economy gets customers, through circulation of money.

“If you don’t decide to work for one of these industries, you can still pay 10% of your income on your school loans, until you get a job that pays enough to make the regular payment. It is prudent to stay within your affordability index and make the maximum payment, plus more to principle, so you won’t have your school loans 30 years after graduation, or you don’t get your paycheck garnished for non-payment. Many students don’t understand that if they miss payments the school loan agencies will take the money from their paycheck through garnishment, sometimes only taking interest. When they only take interest, you will have the loan forever — another trick the school loan agencies play.”

Many school loans don’t have hardship clauses that allow you to defer your loan due to illness, severe injury, or disability. That simply means that if you have a disaster in your life, you will go into default and possibly be hounded for payment for the rest of your life. You can read about major problems with school loan agencies at, schoolloanjustice.org.

So, we know we have the large balance problems, we have the large payment issues, we have the low income of startup college grads, and we have the disorganized school loan payment agencies. We also have the financial aid debacle reaching a trillion dollar bubble.

Financial aid does not mean 100% college payment aid. It only means the system will aid or assists you in paying for college in some way. The responsibility of the student and parent is to find out, “what way?” What does college financial aid mean to me? Many students don’t understand that you get a package, which in 95% of cases, does not cover 100% of cost. It usually covers an average of about 70% of cost. This is where the low income and middle income students experience problems. When they arrive at college, go for a semester, and then realize at the end of the semester that they cannot return until they come up with another $2000 or $3000. This is a lot of money for a low or middle income family struggling to make ends meet. Some students will be asked to leave after the year is over, if they can’t come up with the deficit not covered by financial aid. Then there is the student who goes for 3 years, and is told they have maxed-out their school  loan qualifications and can’t return to any school. Bernie Sanders, independent senator from Vermont told the story of a college student who contacted him for help. She spent 3 years in college, got $55,000 in school loans and was told not to return since she reached her maximum qualification. Now, she has $55,000 in school loans and no college degree. There are a millions of sad stories, but, if you do your homework before you start college, you can avoid being a sad story statistic.

Here are some things you and your parents can do. When you are a junior in high school 1) Apply for all of the scholarships you qualify for — many scholarships are need based, so those are hard to get for kids from families with a good income. They are also over-weighted with applications because of the school loan issue. 2) Research the total cost of the 10 tops colleges you are interested in; call the registration office and the financial aid office: ask, what are your separate college costs? a) Tuition (in state and out), b) Fees, c) Room and board, d) Books, e) Registration fees, f) Orientation fees, g) Add about 5% cost to the total for hidden cost–state colleges have some hidden cost, private colleges have a lot of hidden cost, h) Ask what their total financial aid package is for the year. Hint: if the total award package is $12,000 and the total school cost is $16,000 — unless you have a fairy God Mother, you simply cannot afford this school, even with loans. This is called a “trap”; many students get caught in this trap. They are accepted, attend the first and sometimes second semester of college, then they are asked to leave if they cannot come up with the deficit.

I have outlined a lot of issues involving the college school loan debt crisis in America. You see why we are in a crisis. In many countries, college is free; in the United States College is outrageously expensive compared to most starting salaries. The financial news is now saying we are in a “bubble” with school loans. That means, when the bubble burst there will be millions who cannot buy homes, buy cars, or even get credit cards. Many Corporations and Universities are getting rich off school loan while the American students are getting really poor. How is it benefiting society as a whole when we have people who can’t contribute, they can’t give back, they can’t get jobs to pay their debts, or they can’t get jobs because of unpaid debt? To charge students huge college costs in the way of loans they can’t afford to pay is a loose-loose situation for everyone; taxpayers, students, the economy, families, and society as a whole.

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Lois Center-Shabazz
author of, Live Rich Save Money! Budget Diary
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