WHY IT MATTERS: Student Debt

WASHINGTON – THE ISSUE: More Americans are getting buried by student debt — causing delays in home ownership, limiting how much people can save and leaving taxpayers at risk as many loans go unpaid. The statistics look daunting.

Student debt now totals around $1.26 trillion. This amounts to a stunning 350 per cent increase since 2005, according to the New York Federal Reserve. Not everyone sees that surge as troubling. President Barack Obama’s Council of Economic Advisers issued a report this year saying that the debt is beneficial because college graduates earn more money than people with only high school degrees.

But college drop-outs who borrow are increasingly less likely to repay their loans, as are former students at for-profit colleges that in some cases never provided the stable careers promised in their brochures. Nor are college graduates necessarily repaying their loans, a reflection of the stagnating incomes for many.

More than 60 per cent of the class of 2014 graduated with debt that averaged nearly $27,000, according to the College Board. Not all that taxpayer-backed debt is getting repaid. Out of the 43 million Americans with student debt, roughly 16 per cent are in long-term default —a potential hit in excess of $100 billion that taxpayers would absorb.

Studies have shown that student debt payments have led to a delay in home ownership, as well as a decline in college savings for the borrowers’ children — creating a multigenerational debt cycle.

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WHERE THEY STAND

Democrat Hillary Clinton hopes to curtail debt dramatically for undergraduates. She has modified her initial plan after talks with the presidential campaign of Vermont Sen. Bernie Sanders, who ran on the promise of taxpayer-funded college.

Clinton now proposes no tuition for students from families making less than $85,000 when they go to an in-state, public college. That threshold would rise to $125,000 by 2021. All community colleges would be tuition-free, in addition to making it easier for existing borrowers to refinance at lower rates, limit repayments to 10 per cent of income and forgive any remaining college debt after 20 years. The plan would cost the federal government an estimated $500 billion over 10 years, which the Clinton campaign says would be paid for by ending tax preferences for wealthier Americans.

Republican Donald Trump this month promised to cap payments at 12.5 per cent of a borrower’s income, with loan forgiveness if they make payments for 15 years. A loan forgiveness program of that scale could increase costs for taxpayers, although the exact budget impact has yet to be estimated by outside experts. Trump has also pledged to cut federal regulation on colleges so that any savings can be passed onto students.

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WHY IT MATTERS

Education debt has become a drag on the kinds of spending and saving that historically helped U.S. economic growth.

The average college-educated head of household under 40 owes $404 a month in student debt payments, according to an AP analysis of Federal Reserve data. That’s slightly more than what the government says the average college-educated family spends at the supermarket.

An analysis of renters this year by the company Apartment List found that education loans make it more difficult to buy a home, a critical rite of passage. College-educated millennials with student debt must typically save for a full 10 years to afford a 20 per cent down payment, compared with five years for those without debt.

The high debt loads and need for many workers to return to school also mean that older Americans make up a growing share of education loans.

Americans over 40 account for 35 per cent of education debt, up from 25 per cent in 2004, according to the New York Federal Reserve. Contributing to this surge: longer repayment schedules, more midcareer job changes and additional borrowing for children’s education.

Generation X adults — those from 35 to 50 years old — owe about as much as people fresh out of college do.

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This story is part of AP’s “Why It Matters” series, examining three dozen issues at stake in the presidential election. You can find the series at http://apne.ws/2bBG85a

EDITOR’S NOTE _ One in an AP series examining issues at stake in the presidential election and how they affect people