Student debt a 'life sentence' for millions of Americans

LOS ANGELES, United States—Haley Walters is 5 years away from earning her law degree. If everything goes according to plan, she will be under a mountain of $100,000 in student debt by the time she enters the workforce.

Like millions of Americans, Walters is paying a steep price for an education that will likely weigh her down financially for much of her adult life.

"I think the student debt crisis is truly a life sentence," the 19-year-old Californian told AFP.

With 45 million borrowers owing some $1.6 trillion, the debt burden of American college graduates has exploded in recent years.

It has emerged as a key issue in the 2020 presidential campaign, with candidate Bernie Sanders unveiling an ambitious plan Monday to erase all student loan debt.

"Somebody who graduates from a public university this year is expected to have over $35,000 in student loan debt on average," said Cody Hounanian, program director of Student Debt Crisis, a California non-profit that assists students and fights for reforms.

According to official statistics, 71 percent of US students are burdened by such debt, with minorities the hardest hit.

"Black women particularly are the most impacted group with the highest student debt total per graduate," Hounanian said.

Despite scholarships and financial aid available to many, the cost of higher education is such that the majority of students are unable to repay their loans on schedule.

"When borrowers leave school, they're in a program that's supposed to take 10 years... but more and more are enrolling in federal programs that are actually 20 or 25 years in length," Hounanian said.

In the long term, the loan balance for such people increases, interest accrues, and the debt burden just keeps going upwards, he added.

Hounanian spoke of his own experience as an example.

"I had $30,000 in student loan debt, I pay over $150 a month, and that's in one of these affordable repayment programs," he said. "By doing that, my loan balance is actually increasing. I'm not covering even the entire interest that's accrued." 

"I'm paying every month," he added, "just to be more in debt."

'SYSTEM ISN'T WORKING'

Several experts interviewed said it's not unusual to have 2 generations in one family burdened with student debt.

That's the case for Walters, who just graduated with a 2-year degree in political science from Pasadena City College, near Los Angeles.

While she managed to go through that school without accumulating debt, come autumn she will be entering the prestigious—and much more expensive—University of California Berkeley, with a law degree the ultimate goal. 

Despite being awarded scholarships, Walters said she will still have to take out loans to pay for nearly $20,000 in annual fees.

"That is basically going to turn into loan after loan after loan... each with individual interest rates and individual payments," Walters sighed.

She said she grew up listening to her mother, 58, bemoan the student debt that still haunts her.

"I would hear my mom talk about... how it was basically crippling our finances," she recalled. 

"You know, we couldn't go on vacation, sometimes I didn't get school supplies for the new school year, sometimes we got fewer birthday presents."

Walters said she hopes student debt will be a key issue in the 2020 White House race.

For some candidates, it is already front and center.

'REVOLUTIONARY' BILL

Sanders's "revolutionary" bill aims to erase all student loan debt and make public colleges tuition-free—and he wants the financial industry to help pay for it.

"The American people bailed out Wall Street," Sanders said, referring to lenders deemed "too big to fail" during the late 2000s recession.

"Now it is time for Wall Street to come to the aid of the middle class."

Democratic candidate Elizabeth Warren also has a debt cancellation and free public college plan.

"My dad grew up in an extremely poor family in southern California," said Walters. "The only reason he went to university was because it was free."

Tuition, however, is not the only financial burden of students. 

In California, for example, housing and living expenses represent more than half of the $35,000 needed annually on average for public university.

Hounanian said it was crucial to address those issues to ensure students don't end up saddled with heavy debt before starting their professional lives.

"The system isn't working for students," he said. "It's working for profiteers, for big companies and for those who are making money off of students and borrowers."

source: news.abs-cbn.com

US billionaire's gift to graduates fuels student debt debate

NEW YORK - When the American billionaire Robert Smith announced to students graduating from historically black Morehouse College that he would pay off their student loans, he put himself at the center of one of the 2020 US election's key issues.

While the cost of Smith's surprise gift announced on Saturday to Morehouse's 396-strong class of 2019 is not yet known, the body's student debt is thought to reach $40 million.

Smith, a Texas businessman who is the wealthiest African-American, has been applauded for his generosity, but his gift also generated jealousy among the many Americans struggling with huge student debts.

"Can a billionaire pledge to pay off my student loan debt? I'm glad for the graduating class, but also envious," one Twitter user wrote, reflecting a sentiment common on social media.

Already, several Democratic challengers to President Donald Trump in next year's elections have proposed ways to reduce the nearly $1.5 trillion American student loan burden, and even politicians who aren't running have weighed in.

"People shouldn't be in a situation where they depend on a stranger's enormous act of charity for this kind of liberation to begin with," tweeted Alexandria Ocasio-Cortez, a rising Democratic House representative who was elected last year in part on the promise of free university education.

MOBILIZED BILLIONAIRES

More than two-thirds of American graduates were in debt in 2016, the Institute for College Access and Success said in April, with their burden averaging $29,650.

Paying off the debt often weighs heavily on young Americans' lives through their 20s and 30s, delaying the starting of families and the purchase of cars and homes. 

All of that affects the US economy, and Smith isn't the first billionaire to take notice.

Last November, former New York mayor Michael Bloomberg pledged $1.8 billion to Johns Hopkins University in Baltimore, from which he graduated in 1964.

The donation aims to make education at the elite school more affordable to low- and middle-income students, who would otherwise have to face fees and living costs totaling about $72,000 per-year.

Another billionaire, Kenneth Langone, gave $100 million to the New York University School of Medicine last year to make tuition free for its current and future students.

TAX THE RICH 

Student loan debt levels soared in the US between 1996 and 2012, and Senator Bernie Sanders put the rising costs at the heart of his unsuccessful 2016 presidential campaign.

The following year, the independent politician from Vermont put a measure called the "College For All Act" before the Senate, which would have abolished tuition fees at public universities for most families.

The cost of the measure, which the Republicans leading the Senate have shown no interest in, has been estimated at $600 billion, to be financed by a tax on financial transactions.

Sanders is now among the 23 candidates for the 2020 Democratic presidential nomination, and together with Massachusetts Senator Elizabeth Warren has once again made student loan debt a plank of his campaign.

Warren last month unveiled a detailed proposal to abolish student fees in public universities and cancel student loan debt according to income.

The plan, estimated to cost $1.25 billion over a decade, would be financed by a tax on the very wealthy.

STATE MEASURES

Though few other detailed plans have emerged, almost all Democratic candidates in 2020 argue for making universities more affordable.

With the election still more than a year off, some states are taking their own steps to reduce the cost of higher education.

New York state started offering scholarships last year equaling public university fees to students of modest means, with the caveat that graduates remain in the state for a few years after finishing.

Washington state governor Jay Inslee -- another Democratic candidate in the 2020 race -- on Tuesday signed into a law a bill raising a key business tax and using the revenue to make attending a public university free starting next year for students from families below the median income level.

The bill was supported by two of the state's largest taxpayers: Microsoft and Amazon.

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source: news.abs-cbn.com

Richest black man in US to pay off graduating class's student debt

The 396 young men began the day as students in caps and gowns, ready to graduate from Morehouse College — full of hope, but burdened in most cases with the debts that financed their education.

Then their commencement speaker went off-script with an extraordinary pledge: the newly minted alumni of the historically black college in Atlanta would go forth into the world student debt-free.

Robert F. Smith, the billionaire investor who founded Vista Equity Partners and became the richest black man in America, told the crowd that he and his family would pay off the entire graduating class’s student debt.

“We’re going to put a little fuel in your bus,” Smith said near the end of his address Sunday at the school’s 135th commencement service.

“This is my class, 2019,” he said, personally claiming the graduating seniors as his own. “And my family is making a grant to eliminate their student loans.”

It seemed to take a moment for the immensity of what he had promised to sink in. Then the senior class, all male and mostly African-American, erupted in glee.

“We’re all in robes, hot, the sun was beaming on us,” said Ernest Holmes, who said he had about $10,000 in loans. “Everyone jumped up, cheered. People were crying. It was just the most amazing thing.”

“A blessing, a blessing!” were the words Brandon Manor offered as he imagined for the first time what life would be like without student loans to repay.

Smith, known for a range of philanthropic donations including one to Morehouse earlier this year to finance scholarships, told the audience Sunday that his gift was meant to set an example of paying forward.

“Let’s make sure every class has the same opportunity going forward, because we are enough to take care of our own community,” he said.

Many details remain unsettled, including how students will demonstrate the amount of debt they have and how it will be paid off. Also unclear is the total amount Smith will contribute. According to published figures, recent Morehouse classes have graduated with roughly $10 million in total debt.


2019 New York Times News Service

source: news.abs-cbn.com

US household debt in 2018 jumps $400 bn

Total debt held by US households surged by nearly $400 billion in 2018 to more than $13.5 trillion, marking the sixth straight annual increase, even as home mortgages declined, according to data released Tuesday.

That puts total debt $869 billion higher than the previous peak, just before the start of the global financial crisis in late 2008, the New York Federal Reserve Bank said in its quarterly report.

A decade after the crisis, mortgage debt increased $242 billion to $9.1 trillion, but new home loans originated last year fell $131 billion to the lowest point in four years, the data showed.

But auto loans and student debt continued to rise.

"Auto loan originations for 2018 reached an all-time high," said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. 

Auto loans jumped $53 billion to $1.3 trillion -- the highest in the 19-year history of the data -- and despite a rise in loans going to more creditworthy borrower "its performance has been slowly worsening."

"Growing delinquencies among subprime borrowers are responsible for this deteriorating performance and younger borrowers are struggling most acutely to afford their auto loans," Scally said in a statement.

Student debt jumped $79 billion compared to 2017, to $1.5 trillion, according to the report.

Many economists see the rising student debt burden crimping the economy, preventing college graduates from buying homes.

Credit card debt also jumped $36 billion in the year and, though it has yet to break the $1 trillion level, it was the first time it hit the 2008 peak, the report said.

Delinquency rates for debt more than 90 days past due worsened for credit cards and auto loans but was about flat for mortgages and student debt.

source: news.abs-cbn.com

How Does Student Debt Impact Your Mortgage?

Let’s say you’re a recent college grad. You’ve landed your first real job (or maybe you’ve been working it for a while already) and after years of dorms and apartments, you’re realizing you might as well start building equity in a place of your own.

You wouldn’t be alone. Though you’ll see articles all over the place insisting that millennials just aren’t interested in buying homes, a closer look at the data says the opposite is true actually true.

However, there’s one small hiccup: student loan debt. In 2013, the average student borrower graduated $28,400 in debt, which will almost certainly lead to problems when they try to qualify for a mortgage. So what can you do if all this describes you?

First, let’s take a closer look at the why of this problem.

How does student debt interfere with getting a mortgage?

When lenders do all the math to figure out whether or not you’ll be able to make your monthly payment, they take special care with something called a debt-to-income, or DTI, ratio.

This is almost exactly what it sounds like—it allows banks to get a feel for how much of a borrower’s income is already accounted for by other debts. Ideally, your DTI ratio should be 43% or below, as that’s the cutoff point most banks will use.

Even if your loan is still deferred, which means you haven’t begun payments on it yet, lenders will still estimate monthly commitment from you, though it may be even higher than the standard minimum payment.

What can you do?

Well, there’s the obvious, solution: pay down your debt before applying for a mortgage. Of course, obvious doesn’t always mean easy. Paying off your student loans will take time and careful budgeting, especially if you’re trying to save up for a down payment at the same time. That may mean some serious cutting back on living expenses or avoiding big purchases.

Of course, the other way to improve your DTI ratio is to increase your income. Earning a raise, moving on to a better paying job, or even taking on a part time one are all ways to do just that. Make sure you do so several months before applying, though, or your lender may not count the income.

If neither of those options work for you, you can always try to consolidate your student debt, or convince a parent to co-sign with you. Whatever you do, though, make sure to keep your credit in good standing, or you’ll have to add “bad credit” to your list of problems to fix.

source: totalmortgage.com

One in five households burdened by student debt, a record

The share of American households affected by student debt has more than doubled in the last two decades, soaring from 9% in 1989 to a record of nearly one in five in 2010.

The 19% of households weighed down by school loans is higher even than 2007, when 15% owed money for their education, according to a Pew Research Center analysis of government data.

Young people are especially hard hit, as are poorer Americans. Among households headed by someone younger than age 35, four in 10 have student debt on the books.

For the those with incomes in the lowest fifth nationwide, school loans are equal to nearly a quarter of income. The same group holds 13% of all student debt in the country, up from 11% in 2007.

But such debt is increasing for nearly every demographic in every economic category. Americans in 2007 owed an average of $23,349 — now they have to pay back $26,682.

Student loans now make up 5% of all debts, up from 3% five years ago.

All this as overall household incomes continue their decade-long slide, according to the government. The median annual income slipped 1.5% last year from 2010 to $50,054. That’s 8.1% below 2007 and 8.9% less than 1999.

Nearly 12% of people in their 40s have fallen behind on their student loan payments, according to the Federal Reserve Bank of New York. That percentage goes down to 9.1% for people in their 30s, 9.4% for those in their 50s and 9.5% for those older than 60.

source: latimes.com