Student loan debt still crippling burden

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In this file photo taken on October 29, 2018 Michael Bloomberg, billionaire and former Mayor of New York City, speaks at CityLab Detroit, a global city summit,in Detroit, Michigan. — AFP photo

WASHINGTON: Michael Bloomberg’s record US$1.8 billion donation for financial aid to Johns Hopkins University highlights the problem of student debt in America, which can still be a burden even years after graduation.

According to the Department of Education, 42.2 million Americans wererepaying a federal student loan at the end of June 2018 for a total sum ofnearly US$1.5 trillion, the largest volume of debt after home loans.

Bloomberg, the former mayor of New York, said he was making the gift to hisalma mater to help qualified low- and middle-income students more easily affordaccess to university in a country where post-secondary education fees at eliteschools routinely exceed US$50,000 a year, a prohibitive barrier for mostfamilies.

“I was lucky: My father was a bookkeeper who never made more than $6,000 ayear. But I was able to afford Johns Hopkins University through a NationalDefense student loan and by holding down a job on campus,” Bloomberg, who also founded the financial news service of the same name, wrote in a New York Times op-ed.

The donation, believed to be the biggest ever to a university, “will ensurethat we are able to recruit more first-generation and low-income students andprovide them with full access to every dimension of the Johns Hopkinsexperience,” its head Ronald Daniels said.

Currently, 44 per cent of students at the institution in Baltimore,Maryland, complete their studies in debt, on average owing more than US$24,000,university data shows.For Sandy Baum, a university professor at the Urban Institute, Bloomberg’sgift is “great” but “that’s just a drop in the ocean.”

His move would have had a bigger impact if he gave money to improve thequality of education for more students, in less elite private or publicinstitutions, she told AFP, adding that they sorely lack funding.

Baum is not opposed to student loans because for most students, the choicebecomes one between not going to university or borrowing to go.

Most students’ loans, she says, amount to between US$15,000 and US$20,000 butgetting US$40,000 in debt is not unusual for a bachelor’s degree (four years ofstudy).

The College Board estimates the average cost of a four-year course in aprivate university at US$34,740, not counting additional accommodation and livingexpenses.

Many students take out loans from the federal government or private lenders.

Some, especially the less wealthy, fall into the spiral ofover-indebtedness when they find themselves unable to repay their loans.

They no longer have access to credit, cannot rent a home or buy a car

Alocal cable channel this summer launched a game, “Paid Off,” in which theparticipants battle it out to see who has their student debt cleared.

The problem worries everyone – even the US central bank.

“As student loanscontinue to grow and become larger and larger, then it absolutely could holdback growth,” Jerome Powell warned in March.

Joanna Darcus, a lawyer for the consumer protection organization NCLC,welcomed Bloomberg’s big donation.

It’s needed in our “completely broken system of financing universityeducation by debt,” she said.

For students from low-income backgrounds “it is very important to lower thecost of education” as student debt increases the gap between rich and poor, shetold AFP.

The NCLC advocates for an increase in the number and size of universityscholarships

“If its possible for people to go to school without incurring debt we areall better off; we don’t have to spend money on debt collection and studentdebt doesn’t impair the decision-making on a personal, professional orfinancial level,” she added. — AFP