Kohle Nixon, Ohio University '09, B.A., specialized studies. currently in $67,000 of school debt.
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It's these costs, both personal and societal, that worry economists. More than two-thirds of all college students borrow to pay for school, and 10% to 20% borrow excessively, which is defined as having monthly loan payments that exceed 10% of a person's gross income. According to a study published in March by the Institute for Higher Education Policy, 41% of borrowers who began repayment in 2005 became delinquent or defaulted within five years. Repayments--and the often severe penalties that accumulate if borrowers fall behind--kick in regardless of whether students leave school with a degree, which points to another big problem: the connection between college dropouts and crippling debt. Barely half the students who start college get a degree within six years, and graduation rates at less selective colleges often hover at 25% or less.
More Toxic than Mortgages
It's nearly impossible to discharge federal or private student-loan debt in bankruptcy, unless you meet the incredibly harsh "undue hardship" standard. In 2008, for example, only 0.04% of student-loan recipients who filed for bankruptcy succeeded in getting their college loans dismissed. Meanwhile, the government can garnish up to 15% of your take-home pay, dock your disability benefits and even deny you a security clearance, all in the name of student-loan payback. Defaulting will torpedo your credit rating to the point where for years to come you'll have a tough time getting a credit card, let alone a car or home loan. "Student debt is more toxic than mortgages," says Mark C. Taylor, a religion professor at Columbia University and the author of the higher-education critique Crisis on Campus, "because you can't walk away from it."
Given the dire consequences of defaulting, the government recently created an income-based repayment plan for federal-student-loan borrowers whose debt at graduation exceeds their starting salary. Monthly payments will be lower than they would be under the standard 10-year repayment plan, and although users may end up paying more interest over the life of their loans, anything still owed after 25 years will be written off. Another new program forgives federal loans for borrowers who spend 10 years working full time in public service.
But these options apply only to federal loans. To try to help people like Lyndsey who took out massive private loans, Fordham law-school grad Robert Applebaum started ForgiveStudentLoanDebt.com which champions erasing student debt to stimulate the economy. (This is not an unheard-of strategy even on a national scale. Bono has been promoting the same idea for sub-Saharan African countries for years.) Applebaum has already secured the more than 25,000 signatures needed to deliver his petition to the President through the White House's We the People program. He has also amassed many followers on Facebook and at least one fan in the House of Representatives. This summer Michigan Democrat Hansen Clarke introduced a bill that includes a provision about forgiving student loans.