America / Culture / Debt / Economy

Pay As You Earn: Not the Solution to Student Debt Crisis

President Obama’s expansion of the Pay As You Earn program for student loan payment while earning support still fails to fix the root of the student debt problem.

The expansion allows for more people to become eligible for their student loan payments to be capped at 10 percent of their monthly income, which is based on their earnings and family size. This will allow an additional 5 million borrowers to take advantage of this program starting December 2015.

Another portion of the program allows borrowers 20 years to pay back their loans (with a larger interest rate). If they are unable to pay back their loans after 20 years, PAYE includes forgiving an outstanding debt after 20 years or 10 years if the borrower works in the public sector or for a nonprofit. While this substantially lowers payments compared the to the standard 10-year repayment plan, borrowers are still responsible for paying taxes on the forgiven loan payments due to federal tax laws.

Although PAYE sounds good in theory with having lower monthly loan payments and having the ability for loans to be forgiven after 20 years, this is still not the solution to the student debt crisis.

Not everyone is covered in PAYE. Those who do not qualify for federal loans are not able to participate in program even if they have the same amount of loans or more than someone who was qualified for federal loans. They are left to drown in their own debt.

Not only does PAYE not cover everyone, but it can also add to the student debt problem. Lowering loan costs may have the opposite effect than intended. According to the Education Expert Scott Fleming of the American Action Forum, “Making loans cheaper to borrow doesn’t discourage anyone from borrowing more money, and may actually encourage tuition inflation on the part of colleges eager to capture more federal funding, thereby making college even more unattainable for some.”

The root of the problem in student debt is more so the tuition of the universities and not so much the students borrowing money. There has to be something that can be done to lower tuition, whether it be getting rid of unnecessary personnel at the university or limiting million dollar renovations or eliminating frivolous uses of money. There should be a maximum tuition fee that universities can have, something that will make it more realistic for young people to be able to get their degree without having to take out so many loans. You cannot make a livelihood without a college degree now and days, but due to college costs there are less people that are able to attend college.

Tuitions around the world are significantly less than tuition in the United States, which leads to these other countries having lower student debt than the U.S. The average education cost of the U.S. is $13,856 which is by far the most expensive in the world (according to the Global Higher Education Rankings 2010). The closest country to the cost of the U.S. is Japan with $11,865. However a majority of the schools are closer to the $3,000-$5,000 range with New Zealand at $3,118, Netherlands at $3,125, Canada at $5,974, and Great Britain at $5,288. Some countries have tuitions lower than that, such as France at $585, Denmark at $596, and Germany at $933. In fact some countries like Spain, Greece, Norway, and Scotland even have free tuition. The fact that the U.S. has the highest average education cost in the world explains why we have such high student debt.

As clichéd as the saying “the children are our future” is, it is true. These children can only afford college by taking out hundreds of thousands of dollars in loans. These children who are burdened by these loans for the rest of their life are shaping the future of our economy. What we need to do is invest in these children and their future education. We need to make a college education an accessible option to all students because our economy depends on these students receiving a steady job and fueling the economy through the production and consumption of goods. These children will be unable to do that however if they cannot find a job because they do not have a college degree or because they are drowning in loans.

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