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From The Desk Of NY State Senator Jack Martins: June 12, 2012

Degrees And Debt

Sometimes I look at my four daughters and catch my breath, not just because they’re beautiful (although I think they are), but because I wonder how in the world my wife and I are going to pay for their college educations. It’s not just us. It seems as if every couple we speak to has precisely the same dilemma. And almost everyone’s response is the same: get anxious, then get angry about tuition rates, and then try to ignore it for lack of a better answer.  It’s not much of a plan, but unfortunately many people are pinning their hopes on scholarships and loans.

So today, I’d like to share my own thoughts about the student loan crisis, which has been drawing national attention as of late and how I think we’re responsible for a bit of this mess.  I think it’s a worthwhile discussion for us to have here at home on Long Island, and of course, I welcome your thoughts should you care to email me.  

For starters, if the average American couple walked into a bank and tried to collateralize a loan for $100,000 using their home, you could be pretty sure they’d have a hard time getting that loan in today’s economic environment.  If they did manage to secure it, you could also be sure that they probably had to jump through quite a few hoops to make it happen. For better or worse, loans are getting harder and harder to come by.    

Now consider for a moment that loans like that are made all the time, but to 17- and 18-year olds, who have no collateral whatsoever, no credit history, and who don’t even have a job. These loans are based solely on the supposed strength that their future college degree will help them find gainful employment.   

We all agree that higher education is important and that as a nation, it’s in our best interest to make sure our young people have access to the American Dream. We’ve all heard the studies that indicate a degree is worth nearly $1 million in added income over a lifetime and, last week, I actually read that those with college degrees can expect to live five years longer (I don’t buy that one entirely). But what if access to these loans has backfired? What if we’re actually mortgaging away the dreams of our children by burying them in debt?   

Here are some sobering statistics:  on average, today’s college graduates leave school owing $23,000. A full 10 percent of them owe more than $54,000.  And sadly, 3 percent owe a whopping $100,000. As if those numbers aren’t shocking enough, the total amount of student debt in this country is now approaching the $1 trillion mark. That now surpasses the total amount of credit card debt owed in our country. Just think: our children already owe $1 trillion dollars.

That’s why after graduation they can’t afford to live on their own, get married, buy a home or start a family.  To supposedly give them access to the American Dream, we’ve saddled them with so much debt that they can no longer afford to pursue it.  What’s worse is that this happened quietly and until now, no one has paid much attention.

So why has this happened?  There are many reasons but there’s an obvious one we might overlook.  Much like the real estate bubble that we’re still digging out from, we’ve made loans to these incredible dollar amounts almost too accessible.  And just like the housing market, universities responded as any free market would, by increasing prices.

In fact, the average tuition at private universities jumped about 474 percent percent from 1970 to 1990.  In 1980, college tuition commanded about 26 percent of the median family income while in 2004, it more than doubled to 56 percent.

With more than 2 million college graduates unemployed, this is bad news. A growing number are late with payments, with 9 percent of the total dollar amount owed already more than 90 days in arrears.

Currently, young people in the 18 to 24 age bracket spend nearly 30 percent of their monthly income on debt repayment, which is double what it was in 1992.

Keep in mind that commercial lenders typically consider 10 percent as a ceiling on such payments. Now, whenever I meet a new college grad I always ask what their plans are.  I wish I had a nickel for every answer that begins, “Well first I plan to pay off my student loans.” 

The reality is that we simply can’t do away with these loans. Frankly speaking, too many of our children could not get college educations if that were the case.  But any answer to the debate on student debt has to take into account the reality that student loans are absolutely big business and that as noble as providing such accessible loans seems, it has also driven the costs of college education through the roof.        

With that in mind, my senate colleagues and I have introduced legislation to help middle-class families and students afford these rapidly increasing costs, the senate’s 2012 College Affordability Plan (S.7449A). While loans play a role in the plan, it also focuses on other ways to ease the cost burden of higher education: tax deductions for families and tax credits for the students themselves.  It’s a just the first step but it’s in the right direction.

More information on the plan has been posted on my website at martins.nysenate.gov. I’ll keep you informed here as we progress.