Student loan-debt: The ugly truth of the American dream

                Education is the key to success in our society, but the access to it has a price depending on where you live around the world. As a French student in a public university, tuition fees have never been a big deal for me. France's policy towards education is to provide access for everybody no matter their social status. Nevertheless, France has recently seen growing numbers of private business schools, which are following the American and English system of high tuition fees. More and more French students are willing to pay for their studies and for most of them, they have to take out a loan. What we call the Student’s loan debt yet, stays at a low level in France which is not the case in the U.S. Some economists talk about a time bomb threatening to blow up the U.S economy. According to the FED, the current student debt amount is rising at a rate of $2.663.30 per second!

 Federal Reserve. November 2016

According to the New-York Federal Reserve, only 37% of American students can pay back their debt. This issue concerns 40 million Americans who are living a waking nightmare.

A postgraduate nightmare:

Chris Nickles for www.NPR.org

Many American students after their graduation are still slaves of their debt contracted during their studies. The perspective of a high paid job is, most of the time an illusion and a lot of graduates are paid just above the minimum wage after getting their degree. The testimony of Robert Pendry who was living in this endless vicious circle shows how inhuman this situation can be. Thanks to money he inherited from his grandmother, Robert's $250,000 cumulative debt has partly been paid off. A real relief for him and his mother despite the circumstances. However, he is still currently $20,000 in debt but like he said: “this is manageable”.

There are hundreds of “Roberts” in America, and most of them did not have the chance to be helped by their family. Therefore, there was a lot of hope with the last presidential election.

Trump’s (no) Plan:

Last week, American citizens made their choice, and Donald Trump is today the 45^th president of the United States of America. The billionaire has never made any real statement and does not have any program about the American Student Debt. As a Republican, Trump has a very liberal view on this issue and he said: “Loans must be considered like an investment in America’s future”. For him, the loan should be handled exclusively by private banks. However, President Trump must have forgotten that the giant lending group Sally Mae, which was a government-affiliated group was already in 1997 entirely privatized and the government involvement is largely reduced.

Many consider that higher education must be a key issue on the government agenda, and consider that letting private banks make a profit from it by increasing the interest rate (between 8-10%) will lead to a new crisis.

A future economic crisis?:

There are a lot of opinions about the student debt in the U.S, some are seeing an upcoming crisis like that subprimes, other think that we cannot talk about a financial crisis because 85% of those loans are guaranteed by the Federal State with a fixed interest rate. Therefore, that limits the impact on the financial system, but the amount borrowed from the States are limited to $27,000 for 4 years which is nothing compared to the amount borrowed from private banks. The difference between those two crises is that for the subprime when you were considered insolvent the bank had the right to seize your house and other personal belongings. But with the student debt, you cannot declare yourself unsolvable even though you cannot meet your payment. Consequently, people are left with their debt their entire life, because banks cannot seize your degree. Hence, students are drowning in debt their entire life unable to save money for the future. Today student loans represent 7% of America GDP, which is what  the subprime debt represented in 2008. 

The outgoing president Obama who finish paying his own $60,000 student debt in 2004, started a program in 2014 “pay as you earn” which limits the reimbursement of student debt to 10% of the monthly income. Today, with the new president Donald Trump, solutions related to this important issue remain unclear. America may not face a new financial crisis, but this situation will lead the country to a massive human capital degradation and a disinvestment in education by the future generation. 

Iman.T

Sources:

https://www.theguardian.com/money/student-debt-us

Emma Hooper, « La dette étudiante américaine, prochaine crise des subprimes ? »,

Regards croisés sur l'économie 2015/1 (n° 16), p. 131-133.

http://etudiant.lefigaro.fr/article/election-americaine-les-principales-mesures-de-donald-trump-sur-l-education_73567d74-a65b-11e6-8482-bccab3302ba7/

http://www.npr.org/sections/ed/2016/07/11/484364476/im-a-student-debt-slave-howd-we-get-here