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Inside Story Americas

Young and in debt

Amid news that student debts may have long-term effects on US economic growth, we ask if students have any other choice?

Last Modified: 27 Apr 2013 10:31
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A warning issued by US financial regulators has said that the large and growing levels of student debt may hamper the country's economic growth. But do American students have any other choice?

The number of people who graduate with student loans is increasing as a percentage and the amount they carry is increasing .... There is no modern economy that really saddles their young people with this much debt at a period when they are supposed to be buying their own homes, building families, investing in themselves. 

Mike Konczal, Roosevelt Institute

The US economy is growing, but only at a rate of 2.5 percent. And financial regulators say the rising rate of debt as a result of college loans may be hampering the struggling economy. 

A report from the Financial Stability Oversight Council warns that debt burdens combined with a poor job market means many students cannot make their payments. That then negatively impacts their credit which then reduces their ability to qualify for loans to buy big-ticket items, like homes and cars.

And recently, the American Medical Association also warned that the high cost of college tuition is having a negative impact on the medical profession, leading to a decrease in the racial diversity of the physician workforce, as well as a decrease in the number of doctors who specialise in primary care. 

According to analysis by the New York Federal Reserve, around 13 percent of student borrowers owe more than $50,000.

Another 40 percent owe less than $10,000; nearly 30 percent owe between $10,000 and $25,000; and around 18 percent owe between $25,000 and $50,000.

During his recent budget proposal, the US president outlined changes to federal student loans.

Barack Obama wants interest rates on the loans to be pegged to annual market rates. The current rate of 6.8 percent for most undergraduate loans, and 3.4 percent for subsidised undergraduate loans was set by Congress.

Under the president's proposal, the rates would be based the government's borrowing costs which are at an all-time low.

That means that current interest rates for student loans would be reduced to 4.75 percent, and for subsidised loans it would be 2.75 percent. But critics say that without a cap on student loan interest rates, borrowers may end up paying far more in the future.

This generation is less in debt than previous generations, in fact, it has the highest share of people who have no debt since the early 1980s .... At the same time the opportunity cost of going to school has declined. And economists say a recession is a good time to invest in yourself ... and in your education.

Derek Thompson, The Atlantic

Tuition fees vary around the world.

In 2012, the UK government controversially introduced tuition fees of about $14,000 a year.

But students only have to pay this money after they have graduated through taxation when they reach a certain earning threshold.

In the Canadian state of Quebec there were large-scale student protests in 2012 after the government introduced increases in the price of tuition from around $2,100 a year to about $3,700 between 2012 and 2018.

In contrast, out of the seven German states which have been charging roughly $1,300 a year in tuition fees since 2005, all but two (Bavaria and Lower Saxony) have abolished the fees with those two states expected to follow suit in coming months.

Back in the US, the New York Federal Reserve has said that student debt tripled in the last eight years. The total US student debt currently stands at $966bn, and there has been a 70 percent increase in the number of borrowers.

Meanwhile, US college enrolment is at an all-time high at 45 percent for 18 to 24 year olds.

To discuss the mountain of debt facing US students, Inside Story Americas with presenter Shihab Rattansi is joined by guests: Natalia Abrams, the co-founder and director of operations for Student Debt Crisis; Mike Konczal, an economist and fellow at the Roosevelt Institute; and Derek Thompson, senior editor at The Atlantic.

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Al Jazeera
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