Is student loan debt the next financial crisis?
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Up until two months ago, I was carrying a student loan debt balance of over $130,000. My monthly payments were just over $1,250 per month—a month’s rent for many people in New York City. It took me 14 years to pay off about $20,000 on my loans, but that didn’t make a dent with the amount of interest that was accruing each year. I was convinced that I would simply keep working and paying down my loans until I dropped dead—and even then, I wondered if my loans would die with me.

I attended a private law school while raising two children and I had no other way to finance my education than to take out loans. For many years after graduation, I lived paycheck-to-paycheck. Luckily for me, my loan payments were tied to my salary—thanks to the very income-driven repayment plans that Congress is proposing to axe with H.R. 4508, Promoting Real Opportunity, Success, and Prosperity (PROSPER) Act. Income-based repayment allows for flexibility in repaying student loans rather than defaulting or deferring if an individual has a swing in their income. Eliminating this already established plan could harm or make it impossible for those without wealth to enter careers such as teaching, nursing, public service and many more.

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My law degree came at a very high price and I do not just mean my monthly payments. I often wondered it if was all worth it. The financial insecurity of not knowing if I would ever overcome my debt coupled with the fear of not being able to set aside money for my children so that they could pursue their own dreams and their own college careers resulted in debilitating anxiety. I am in a very different financial situation now, and I was very proud when I mailed checks amounting to close to $80,000 to my student loan servicers in January. Two things had to happen though for me to able to pay off that amount of debt. My salary substantially increased and, after the death of a family member, I received a large lump sum life insurance policy payout.

While my opportunity to pay down my loans might be unique…my story is not. The anxiety and uncertainty that I felt about my financial situation is becoming all too common of a reality for so many Americans pursuing college degrees. Since 2014, student loan debts have increased from $260 billion to roughly $1.4 trillion. At this price tag, policymakers should be working to improve degree attainment, certification quality, repayment options, and financial stability; but instead they are advancing legislation like the PROSPER Act. It would restructure federal student loans to dilute and restrict eligibility for Pell Grants, would remove rules that hold for-profit colleges accountable for deceptive and predatory behavior, would eliminate all loan forgiveness programs, and would redefine income-driven repayment plans—hurting those who need it most.

The National Consumer Law Center estimates that if Congress replaces existing income-driven repayment plans with the PROSPECT Act proposals, a borrower with $30,000 in student loan debt would need 138 years to repay their loan. With degree attainment so closely linked to employment, it is more important than ever that we make attaining a post-secondary education more affordable, that we encourage students to complete their degree, and that we have repayment plan options that support long-term financial health. The PROSPER Act would do the opposite by making it more difficult to receive financial aid if you are going to school part-time. While graduating within this timeframe may be achievable for some students, parents pursuing degrees while raising a family the way I did, low-income individuals working multiple jobs to save for tuition and books, and many other students need more time and flexibility. 

I am lucky enough to live in New York City, where I know my City is fighting for me. Here in New York City we are working to assist New Yorkers with low incomes by developing and offering innovative programs and services to increase access to high-quality, low-cost financial education and counseling, safe and affordable mainstream financial services, and income-boosting tax credits and savings. In December, our Office of Financial Empowerment, in partnership with the Federal Reserve Bank of New York, released a first of its kind report that studied student loan outcomes on a neighborhood level in an effort to provide policymakers and community leaders with the information needed for effective, targeted interventions to ease the burden for New Yorkers struggling with student debt. As a result, last month, we launched a targeted series of Student Loan Debt Clinics to assist New Yorkers who have questions or concerns about their student loan debt. While these programs help individuals tackle their debt and better understand their finances, more needs to be done on the federal level to lower the overall cost of student loan debt.

This research also shows that student loan repayment success corresponds directly to income; individuals living in lower-income neighborhoods have higher rates of delinquency and default. Under the PROSPER Act, all loans would be unsubsidized, meaning that interest would accrue from disbursement, essentially making student loans more expensive. Our lower-income communities are struggling to pay off their loans as it is. Instead of eliminating the grace period on student loan interest, we should be extending it further past graduation, allowing even more time for the student to secure a job and be financially settled before they begin paying off their loans.

As an agency also charged with protecting consumers, the NYC Department of Consumer Affairs (DCA) works tirelessly to combat deceptive and predatory practices that put people into cycles of debt. Using our authority under the City’s Consumer Protection Law, DCA is currently investigating several for-profit schools for potential violations as it relates to financial aid, recruitment, and debt collection practices. Predatory for-profit colleges take advantage of the ambition that so many Americans with low incomes have for a better life. All too often students are left with a worthless degree —or no degree—and debts that are impossible to manage. The PROSPER Act rolls back and prohibits the Department of Education from revisiting key Obama administration regulations that safeguard consumers including the gainful employment, borrower defense, and credit hour rules that hold for-profits accountable for the success of their students and the rigor of their curriculum in an effort to combat predatory and exploitative businesses practices.

I still carry some student loan debt but it is now a much lower amount. And my boys are on sound footing too. My oldest son is a junior attending a public university and he is going to graduate without any debt. My youngest one will be off to college this fall and we have had many conversations about how his choices today can make or break his financial health in the future. But what about the rest of the children who are dreaming of pursuing higher education? Who is watching out for them? The PROSPER Act only promotes opportunity, success, and prosperity for private lending institutions and for-profit colleges, not the millions of hardworking Americans struggling to pay off their loans.

Lorelei Salas is the Commissioner of the NYC Department of Consumer Affairs, which houses the City’s Office of Financial Empowerment. Learn more at nyc.gov/dca.