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Paying Back, Not Giving Back
American colleges and universities play a pivotal role in training the nation's citizens, leaders, innovators, public servants and educators. In today's economy, a college education is more desirable than ever before - millions of high school students strive for its promise and the benefits it brings for both the individual and society.
In the past decade, government support for higher education has declined; as a result, tuition and fees have increased. Grants have failed to keep pace. As costs continue to swell, students are taking on more and more debt to pay for their degrees. Two-thirds of all four-year college graduates in 2004 left school with student debt, compared with less than one-third in 1993.
Recent graduates, especially those with low and moderate incomes, must spend the vast majority of their salaries on necessities such as rent, health care, and food. For borrowers struggling to cover basic costs, student loan repayment can create a significant and measurable impact on their lives. This report focuses on such "burdensome" or "unmanageable" debt. Last fall, two economists, Sandy Baum and Saul Schwarz, published a report proposing a new graduated benchmark system for estimating burdensome student debt. They posit that recent graduates with very low salaries-about half of the median individual income in the U.S.-cannot manageably repay their student loan debt while meeting their other needs. Graduates with incomes above this minimum threshold can manageably pay no more than a certain percentage of their income on their student loan debt. Their formula takes into account the fact that recent graduates with low incomes experience financial constraints at lower debt levels than their higher earning peers.
This report looks at the issue of unmanageable debt as it pertains to college graduates entering two critical public service careers: teaching and social work. Given increasing dependence on student loans, borrowers graduating from four-year schools and working in these two public service careers often carry more debt than they can manage. The prospect of burdensome debt likely deters skilled and dedicated college graduates from entering and staying in important careers educating our nation's children and helping the country's most vulnerable populations.
In order to demonstrate the impact of student loan debt on public servants, we looked at average starting salaries of teachers and social workers nationally and by state and estimated what percentage of these new public servants would carry unmanageable student loan debt. "Unmanageable" means that their loan payments would have a measurable and burdensome impact on their lives and would likely hinder their ability to pay for basic necessities.
Factoring in high debt levels, the congressional fixed 6.8% interest rate for federal student loans, and low starting salaries, we found that 23% of public four-year college students graduate with too much debt to manageably repay their loans as a starting teacher. Thirty-seven percent (37%) of public four-year college graduates have too much debt to manage as a starting social worker. Graduates of private four-year colleges face even more significant debt burdens. Thirty-eight percent (38%) of private four year college students would face an unmanageable debt burden as a starting teacher. Fifty-five percent (55%) of private college graduates would face serious repayment challenges as a starting social worker.
The situation detailed in this report does not belong to any one state or any one profession. The jobs profiled serve as a bellwether. As students increasingly finance college through loans, debt has become a national issue with serious policy implications that demands a national solution.
Graduates of public and private universities who want to become teachers may encounter greater financial obstacles in some states than others, given the average starting teacher salary and cost of living. The ten states in which the highest percentage of college graduates would face unmanageable debt as a starting teacher include New Hampshire, Wisconsin, North Dakota, Vermont, Utah, Maine, South Dakota, Montana, Connecticut, and Minnesota.
Having such a high percentage of students facing burdensome debt has consequences both for specific professions of high social value and the entire economy. To solve this problem and ensure that higher education remains within reach for all Americans, we need to increase needbased grant aid; make loan repayment fair and affordable; protect borrowers from usurious lending practices; and provide incentives for state governments and colleges to control tuition costs.
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