There is growing concern about the amount of student loan debt in the U.S, with the Consumer Financial Protection Bureau (CFPB) warning that more than $1 trillion is owed on outstanding loans. The reason behind this record amount of student debt is tied to the rising cost of college and the increase in college enrollment.
While a college degree is still a worthwhile investment, the debt today’s graduates accumulate can impede their financial stability for decades after they leave school. In fact, it can leave many young people with the impression they can’t afford to take a job in public service, such as teaching, because it doesn’t offer a salary high enough to pay off their loans. This reality drives talent away from public service, and is one of reasons the CFPB and others are trying to raise awareness of loan repayment and forgiveness options (See: Public Service & Student Debt).
According to the CFPB, the cost of attending a public university in the U.S. has increased 42% in the last ten years, and for private universities the cost rose 31% for the same period.
Yet even in the face of rising costs, more people are attending college. In the last 20 years, college enrollment has risen from 13.8 million to 21 million. Pew Research now estimates 19%, or one out of five, American households owe outstanding student debt as of 2010.
As worrying as the cost of a college education may be, there is still value in it. Last year I wrote about a Georgetown study which estimated 5.6 million jobs lost during the Great Recession were held by people with a high school diploma or less, and this sector has been slow to recover. Only 1.75 million jobs were lost among workers with an associate’s degree, and 1.6 million of those jobs had been replaced by August 2012. People with a Bachelor’s degree or higher not only saw jobs created during the recession, but another 2 million jobs were added during the recovery.
So people with at least some college education were more likely to find or maintain employment during the recession. But that still doesn’t mean they are on great financial footing. As of 2010, Pew Research estimated the average amount of loans held by households with student debt was $26,682. For families earning less than $21,044, or those who fall into the lowest fifth by household income, the share of the wages going towards student debt is substantial. According to Pew Research:
“Student debt represented 15 cents of every dollar of household income for the lowest fifth of households in 2007. Even with the recent run-up, educational debt represents a much smaller share of household income for the richest fifth of households in comparison to the lowest fifth of households by annual income.”
This debt can keep young couples from buying a house, purchasing a car, or starting a college savings account for their children. And when millions of young people are facing large college debts, this becomes a problem that can potentially ripple through the economy. A May 2013 article in the New York Times characterizes high college debt as a drag on the economy that might be contributing to the slow recovery.
This is where loan forgiveness can offer a partial solution to both personal financial problems and wider economic concerns. The Consumer Financial Protection Bureau just launched a tool designed to raise awareness about Public Service Loan Forgiveness (PSLF). Under this program, teachers, public health workers and other public service employees with Federal Direct Loans can knock out their student debt after ten years of timely payments and can qualify for Income-Based Repayment plans. This frees up income today so public sector workers can become financially independent and it also means in ten years they can walk away from their college debt, free to plan for retirement or their children’s college fund.
The CFPB estimates one out of four American workers are currently eligible for PSLF, and eligible occupations include teaching, nursing, social work and other jobs with government agencies or qualified nonprofits. This is a terrific program, making it financially possible for people to enjoy rewardings careers that benefit society while also successfully managing their student loan repayments. The only problem seems to be it is underused, either because people have not heard about it or do not fully understand the details. For instance, even if your student loans are not Federal Direct Loans, you might be able to consolidate Federal Family Education Loans and Federal Perkins Loans in order to make them eligible for this program. You won’t know until you check it out.
In addition to offering advice to individual consumers on their website, the CFPB is asking eligible employers to talk to their staff about the Public Service Loan Forgiveness. You can find more information by checking out the resources listed below.
- The CFPB Employer’s Toolkit can be found by clicking here.
- A guide for employee’s can be found by clicking here.
- The Department of Education’s Federal Student Aid Office also has a fact sheet and additional information on the program.