Student Debt Is Mostly Held by Graduate Students but Low Income Undergraduates are Most Impacted.

The Economist February 22nd, 2020 pp12,73. Student Debt. “Getting the maths right”. How to fix America’s student-finance problem.

Student loan debt has climbed from about $750B in 2010 to 7% of the American GDP or $1.5T in 2019. By comparison, car loans are about $1.3T and credit card debt in 2019 is $810B.

Forty-five million students hold an average of $37,000 in student debt. As it is, most of this debt is held by graduate-level students who matriculate to well paying professions. More concerning and less manageable is debt owed by 11M poor and non-white undergraduate students who stuggle to pay down debt borrowed for worthless degrees issued by for-profit colleges. As the federal government holds most of these loans, defaulting does not impact financial institutions. Currently, repayment schedules with interest rates as high as 6% kick in at an annual income level of $18,000. Residual debt after 20-25 years is forgiven but is taxed as income.

Some proposed remedies are reasonable including lowering interest rates, raising the minimum income levels to initiate repayment, capping total payments each year from 10% of income to 5% and potentially exempting residual debt up to $57,000 from federal tax.

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