US: Mixed victory for students under Obama loan plan

Marching along the shaded valley beneath skyscrapers housing major bank headquarters in midtown Manhattan, some students in the Occupy Wall Street movement said United States President Barack Obama's new loan plan was too little too late, with real savings totaling no more than $10 a month per low-income borrower.

Students celebrated a mixed victory with the new plan aimed at dropping interest rates by half a percent and shortening debt forgiveness by five years for an average of 6.8 million graduates signed up with the government's direct-loan programme.

Seen as a response to avert a debt default debacle similar to the housing loan crisis, the new plan has critics saying that student loan interest rate hikes next July, expected to double to 6.8%, would hobble any of the plan's potential benefits.

In plain maths, the American Council on Education said the 2012 interest rate hike means students can count on paying $5,000 more in interest for a 10-year loan repayment term for the average $24,000 debt students tuck into their mortar boards at graduation.

With the Federal Reserve Bank of New York reporting last year that student loans had climbed towards $1 trillion, higher than the credit card debt-laden crowd, the reality of paying back those loans could become another financial bubble that could burst.

The US Department of Education recently reported that the student loan default rate had climbed to 8.8% in 2009 from 7% the previous year, before the financial crisis.

This year, default rates climbed yet again. At private for-profit colleges, default rates were 15%, up almost 3% since 2010. Public college loan default rates saw a 7.2% default rate, a climb from 6.0% the previous year.

That is not surprising when viewed against a backdrop of the current 9.4% unemployment rate among college graduates younger than 24, the highest level in 15 years.

It also comes at a time of soaring tuition fees, with increases as high as 20%. Recent College Board figures show that state colleges average more than $8,000 a year and private colleges more than $28,000.

When Loren Hart, 33, attended a four-year philosophy studies programme at the University of North Carolina in Chapel Hill, tuition in the late 1990s was less than $3,000 a year. Today, the University of North Carolina costs students more than $5,000 for residents and $25,000 for out-of-state students.

The $400 tuition increase this year over the 2010-11 school year forced 500 students at the university's Pembroke campus to drop out in September because they couldn't afford the annual increases.

Hart left school carrying a $13,000 debt in 2000. His first job as a pre-school teacher netted $2,000 a month, enough to cover his $100 monthly loan payment. Now Hart is unemployed, and his loan continues to grow as interest amasses on the unpaid balance even though the current student loan repayment programme allows him to defer payments until he finds a job.

"I don't have the money to pay the interest," he said, moving into his 25th night sleeping in the financial district's Liberty Square with the Occupy Wall Street movement. Jumping on a bus headed to New York to join the movement stemmed partly from his frustration over the current student loan crunch.

"It's crippling to young people and our society to have people coming out of school with such high debt," Hart said. "People say we're the greatest country in the world, but if you look at Scandinavian countries that offer free education, that claim is really hard to make."

While Obama readily admitted that he and his wife had graduated with $120,000 in student loans, little sympathy was felt in New York, where many protesting students and recent graduates were cobbling careers together to keep up with loan debt.

What New York postgraduate history student Gregory Rosenthal, 28, wants is complete debt forgiveness.

"I've signed petitions calling for debt forgiveness so young folks in their twenties and thirties can move forward in their lives," he said, preparing to join the Manhattan demonstration before thousands of letters carrying similar complaints were folded into paper airplanes and sent into the skies near the Bank of America headquarters on Sixth Avenue.

Given that almost 700,000 have signed petitions for total loan forgiveness, shaving five years off the current 25-year mark is negligible, he said, adding that developing countries and students in the United States shared something in common.

"One way to lift up African countries would be to cancel out debts to the World Bank and the IMF [International Monetary Fund]," said Rosenthal, who worked as an assistant professor at the State University of New York to help pay for his undergraduate tuition.

"The young people in this country are held back by debt. Four years of school and you're held back in 20 or 30 years of debt."

With the United States currently $14 trillion in debt, the current $1 trillion in outstanding student loans equals more than the cumulative debt of the 15 countries in the Economic Community of West African States, according to the Index Mundi online database.

Back on the streets of New York protester Erica Russo, 24, of Brooklyn, said student loans were intimidating. She graduated from the Massachusetts College of Art and Design last year with a $12,000 loan to repay.

"It makes me so nervous looking at my student loan debt because it's a financial trap," said Russo, who works as a waitress. "It's so much debt and money to borrow for an education that hasn't gotten me a job.

"I think college education should be free. I don't think people should have to take thousands of dollars in loans. People shouldn't have to feel the burden of so much financial debt."

Rosenthal and many of the other marchers who joined the paper airplane protest agreed.

"Who does debt benefit?" Rosenthal asked. "The creditors, the government and the banks. People are being crippled by debt."

Then he and hundreds of others sent that message to some of the banks currently holding student loans. Whether or not the financial institutions will listen remains to be seen.


Comment

I recently graduated with a US$65,000 student loan debt. I wanted the education, I have a nursing degree, I have a job and I am making money, I will pay off my student loans.

What's with this generation of young adults? Seems to me you want everything handed to you. Instead of going to college and partying and receiving your hippie degrees, be responsible, pick a practical career, and stop your crying!

B