Sky-High Public President/Chancellor Salaries, NELNET + BFF’s Mueller-Robak Make Millions While Students Suffer, All are “Part of the Problem” + Cannot Pretend Otherwise

May 11, 2013


Student Debt Slows Growth as Young Spend Less

Karsten Moran for The New York Times

Shane Gill, a 33-year-old high-school teacher in New York, owes about $45,000 in federal student loans, plus another $40,000 to his parents.

Published: May 10, 2013 577 Comments

The anemic economy has left millions of younger working Americans struggling to get ahead. The added millstone of student loan debt, which recently exceeded $1 trillion in total, is making it even harder for many of them, delaying purchases of things like homes, cars and other big-ticket items and acting as a drag on growth, economists said.

Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.

Mr. Gill owes about $45,000 in federal student loans, plus another $40,000 to his parents. That investment in his future has led to a secure job with decent pay and good benefits. But it has left him with tremendous financial constraints, as he faces chipping away at the debt for years on end.

“There’s this anxiety: what if I decided I wanted to get married or have children?” Mr. Gill said. “I don’t know how I would. And that adds to the sense of precariousness. There’s a persistent, buzzing kind of toothache around it.”

The Federal Reserve Bank of New York, in a new study, found that 30-year-olds with student loans were now less likely to have debts like home mortgages than 30-year-olds without student loans — even though most of those with student loans are better educated and can expect to earn more money over their lifetimes. The same pattern holds true for 25-year-olds and car loans.

“It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington. “Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”

The weak economy and tight credit standards remain the main culprits preventing young people just establishing themselves from making major purchases. But millions now face putting a substantial share of their take-home pay toward past debts rather than present needs. Student loan debt leaves them with less money for things like clothes and restaurant meals. And it is even more likely to suppress purchases of more expensive items that need to be bought with credit. A poor job market is compounding the problem: the educational debt burden of many so-called millennials has sharply increased even as they are being forced to get by on significantly less income than the previous generation — a decline of about 15 percent in real terms since 2000, with much of that drop coming from the recession.

According to calculations by the Pew Research Center, the measure of debt to income for households under the age of 35 has ballooned to about 1.5-to-1 in 2010 from about 1-to-1 in 2001. The composition of that debt has shifted, too: more is tied to student debts, and less to homes. “Having a lot of student loan debt makes it harder to qualify for a mortgage and harder to save for a down payment,” said Jed Kolko, the chief economist at Trulia.

With the interest rate on some federal student loans set to double on July 1, House Republicans and Senate Democrats have both put forward proposals to try to hold them down. Representative John Kline, Republican of Minnesota, has proposed tying the rate on several federal student loans to the government’s borrowing costs. Democratic senators, including Dick Durbin of Illinois, have made a similar proposal. Some have suggested going further: Senator Elizabeth Warren, Democrat of Massachusetts, has proposed letting students borrow at the same “discount rate” that the Federal Reserve charges to banks, currently 0.75 percent.

Student loan debt is not only constraining young adults, but also, at least in the near term, holding back the recovery itself, some economists say. The shadows might remain even as the economy picks up, by making young workers more cautious when it comes to decisions about their careers and their finances. Millennials might end up buying less expensive homes or more often choosing to rent than previous generations.

“The debt is shifting how much young people can spend, and it can also be a powerful psychological thing as well,” said Selma Hepp, an economist at the California Association of Realtors.

On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.

Indeed, the economy is far more punishing to workers without a college degree. The college-educated earn, on average, 80 percent more than those who only completed high school, a premium that has widened over the last 30 years. Unemployment rates for the less educated are higher, too.

For most young workers, gaining a college degree remains well worth it in the long run, even if it delays some purchases in the near term. “For an individual going to college and ending up with a lot of debt — you’re still better off,” said Chris G. Christopher of the forecasting firm IHS Global Insight. There might, however, be a slice of young workers who paid huge sums for degrees that prove less valuable on the job market, saddled by a debt burden that could end up holding them back for decades.

Mr. Gill said his education remained a vital investment, even if the debt overhang has for now put white picket fences or a condo with a gleaming view out of reach. “Sometimes I think: ‘What if I were to buy an apartment?’ ” he said. “It is like asking: ‘What am I going to do when I first land on the moon? What’s the first thought that I will have when I see Earth from outer space?’ ”


A version of this article appeared in print on May 11, 2013, on page B1 of the New York edition with the headline: Heavy Load of Student Loan Debt Is Weighing on the Economy, Too.


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    • Eddie
    • anywhere
    NYT Pick

    This is so tragic — to be young and smart and willing to work, but to have one’s life burdened by such a weight. It is tragic for the individual, and it is extremely worrisome for the general society.

    In European countries, undergraduate tuition at excellent public universities is less than $2000 per year (that’s two thousand, not twenty thousand). Most students achieve an excellent education without bankrupting either themselves or their parents.

    US Americans often speak negatively about Europeans as “socialists” and “commies” — yes, the system does use taxpayer money to help finance the cost of higher education, just as the University California system did back in the 70s and 80s.

    I’m worried for the future of the US if only the wealthy can afford to be educated, and all the students choose to be bankers so that they can pay off their student loans.

      • Greg
      • London
      NYT Pick

      This is a a major porblem not only for our economy, but also for our country. I have moved abroad permanently and am currently in a higher-paying job than in the US, and am slowly paying off my student loan debt. When choosing to do my Masters after doing my Bachelors, I studied in the UK rather than the US based on financial reasons (it is a lot cheaper). I have been living in Europe for 8 years now and my career is European-focused, and gained EU citizenship…. I would have gone back to the US but: no jobs and low pay.

        • Sharynski
        • New Hampshire
        NYT Pick

        As far as interest goes, the biggest problem of all is that compounded, capitalized interest added to the principal. Many student loan debtors have actually paid back well over the original amount they borrowed to go to college, but because of the ad infinitum compounding interest, they are still making regular payments — and many eventually will have paid double or triple what they borrowed to get an education. When it comes to college loans, why can’t there be an absolute cap on the total amount paid back — a reasonable percentage over the total amount borrowed? Why should people be paying double what they borrowed when the Department of Education apparently is making over $30 billion dollars a year profit on student loans?

          • Rachel
          • NYC
          NYT Pick

          I think it’s likely that the long, slow recovery in real estate is also linked to the fact that young people are paying off college before they can buy that first house. Many won’t be buying anything until well into their 30s or 40s.

          I’d add that I sometimes wish people who graduated 25+ years ago wouldn’t comment on these stories. Back then, public schools got a lot more government money than they do now; public and private schools were 1/3 the cost. People bragging about how they did it right “back in their day” almost always fail to acknowledge how much easier things were back then, and how much more tax-payer support they were receiving, even if they didn’t realize it.

            • A.P.
            • New York, NY
            NYT Pick

            College level education is the barrier to entry to the hope of a middle-class life. Thus, student loans are essentially made mandatory by the demands of the economy. You gotta pay in order to play in today’s job market. The alternative is likely to accept a lifestyle at or barely above the poverty line.

            The endless increases in college costs, the inevitable saturation of college graduates into the job market, the globalization of the economy, and the likely continuation stagnant salaries domestically will make the student debt problem far worse than it is now.

            Be afraid, be very afraid.

              • Auggie
              • USA
              NYT Pick

              Being educated is always better than ignorance, but when does the cost of that education exceed its value? Employers always want a little more since we are paying for it. It use to be a Bachelor of Science in Nursing was sufficient, now they are pushing for a Masters. Is the quality of Nursing care that much better from a Masters in Nursing vs. just the basic college degree? Pretty soon they are going to want bed pan changers to have a doctorate degree. Where is the end to this race?

              There are employers in certain industries who need, and will beg for intelligent, well trained workers to do specific talented tasks…..and they will pay to train you, if they believe you are a good investment and will stick with them for the long hull. A much better alternative to racking up huge college debt and not knowing how or if it will ever be paid off.

                • Andy Becker
                • NY, NY
                NYT Pick

                The issue that no one has addressed is the cost of higher education. Across the board, the past 10 years have seen an exponential increase in the cost of both public and private education. As with the bubbles from 1998-2008, higher education appear to have joined in with banks to fleece us from our money. Administrators ran wild promising graduates good job placement while exploding their budgets for research and athletics while increasing tuitions every year to little or no fanfare from parents, the media, or government for that matter. That all has dried up – jobs for millennials have disappeared due to the weak economy. College budgets, once in effect, are hardly ever cut back significantly (fears of losing out to competition come to mind) and that savings passed along to the student in the form of lower tuition. The cycle has come to a head with the solution being offered to have students take out more debt (possibly at lower rates – Sen Warren’s proposal) instead of pressuring the institutions to pass along lower tuition and make cuts to fund the smaller budget accordingly. Relying on the economy growing indefinitely to support these inflated costs and growing debt on the next generation is wishful thinking at best.

                  • Reader In Wash, DC
                  • Washington, DC
                  NYT Pick

                  End all federally backing of student loans. If the kids can’t borrow the money the schools won’t be able to charge the high tuition and will reign in costs. The cheap money is what is driving the massive inflation in tuition just as the cheap money created the housing bubble. End the federal government’s involvement in both markets and prices will miraculously become affordable.

                    • j
                    • nj
                    NYT Pick

                    This country has its priorities all wrong. Education should be free or at a substantially lower cost. This is one of the many tradeoffs made when we did not close corporate tax loopholes and states offered corporate giveaways to lure corporations. The end result is that corporations now pay little to no corporate tax, and state and public schools, long the affordable option for many, have increased prices dramatically in response to loss of state revenue. Private schools have also increased prices since many people will pay any price for a college education, leading to an arms race of higher and higher costs. Graduates, and in some cases, parents, are left with a debt burden that will impact them for years. Is any of this any surprise?

                      • sunny
                      • east/west
                      NYT Pick

                      Own a car or buy one with a loan, at 25? Own a home (and have a big mortgage) at 30? I couldn’t do that. Why should these be so entitled? Having a gleaming condo with a great view? That’s beyond 95% of the population ever, in any major city. If they want to move to a cheaper area, they can swing it. The teacher in NYC is making a choice. Let his parents forgive that $40k, while he pays off the banks.

                      I spent years paying off my loans. Second hand car from a sister, no home ownership, no vacations. It’s called life.

                      Where’s the logic of taking money from taxpayers to “forgive” the loans? That money from taxpayers is money they can’t spend on other things, so it comes out of the economy either way.

                        • R padilla
                        • Toronto
                        NYT Pick

                        A few years ago the Bankruptcy laws were changed, making it nearly impossible to get rid of student debt. It wasn’t a big story at the time and the low interest environment has kept it from becoming one.
                        How are we going to protect these young people from the higher interest environment sure to come in 5-10 years? Let’s think now before a whole generation gets permanently wiped out.

                          • Claude600
                          • USVI
                          NYT Pick

                          Our nation is not in decline and there is no crisis here, other than the fact that unfortunately, some people have never learned that debt is part of life. The teacher needs to continue to save his money by bringing his lunch to work, avoid eating out and making large purchases of consumer items, and eventually, he will get out of debt. Owing his parents $40K and having $45 in college loans( $85K total) is insignificant in the long run.

                            • ElliottB
                            • Harvard MA
                            NYT Pick

                            In my humble opinion, the loan process should go like this:
                            In high school, the child and the parents are told approximately how much going to a certain school will cost and how much in loans will be needed. Then ask the child and parents if this is something that they can afford. If not then suggest alternatives, like a two year community college and then the last two years at a 4 year university or college.
                            Telling people after the fact is criminal.

                              • Andrew
                              • New York, NY
                              NYT Pick

                              $45,000 is nothing, considering it’s the only loan that he really needs to concentrate on. Unlike some of us, who have both federal and private loans through actual providers – as opposed to our parents – with floating interest rates, the subject of this article seems to have a relatively manageable debt burden.

                              Congress should wise up and pass Elizabeth Warren’s student loan debt reduction plan and let students borrow (and re-finance, for that matter) at the same near 0% rates at which banks get to borrow. Yes, the lenders profits may shrink a bit, but the overall economy will improve because those of us with unduly debt will have money to spend on consumer goods and the like.

                                • eoiii
                                • nj
                                NYT Pick

                                The federal government, needs to regulate the higher education industry. The education industry seems to follow the same sorts of economic principles as the medical/health industry. There really needs to be an accross the board rate cut of 30% then a cap put on annual increases. Yes, a bunch of administrators will have to be let go from their highly compensated jobs.

                                  • Will B
                                  • New York
                                  NYT Pick

                                  I am now 25. I went to a state school for my undergraduate degree. I had some money saved from a few dead relatives and I managed to get through with no student loans. I figured I would go to law school take out the debt there and pay it off with a respectable salary, or in the alternative get a government job and qualify for loan forgiveness. Just to be clear I applied to law school in early 2008 before the world collapsed around us. I attended an expensive private law school, got good grades graduated in the top quarter of my class from a top tier school and passed the bar exam. It took me more than 6 months to find my first job, and it was a miracle I found the one I did. The thing is, I now have about $150k in student loan debt, I make about $45k and live in a small apartment in queens. Between rent, loan repayments, taxes, restaurant food (i work long hours and have no time to cook) I can save at most about 5k per year. What has made things easier is finding a mate to live with. It cuts rent and utilities in half and provides a lot of security if one of us god forbid loses our job.

                                  The thing is, I hope our generation learns something from this experience. We cannot let the institutions rob us of our deserved future prosperity. Between banks, real estate trusts, and private universities, and large corporations with their billions in lobbying money so far our generation has been robbed When we come to age, I really hope that we can take some of that back

                                    • Elizabeth
                                    • Maryland
                                    NYT Pick

                                    Student debt is just one more sample of evidence that younger adults are being wiped out by too high of a cost of livig in this country, while older Americans reap the benefits of tenured professorships and Medicare. The young are overcharged for the education they receive and they’re forced to pay back punishing rates, so older bankers and professors can live well. It’s generational theft that’s underway.

                                      • canardidiot3
                                      • US
                                      NYT Pick

                                      Cut compensation in academia, end tenure. Perhaps then the inflation rate in education will subside to a level more in line with the overall economy. That is, after all, the root of the student debt crisis.

                                        • dj
                                        • New York
                                        NYT Pick

                                        When I went to college there were not so many distractions and extras for students. Almost all of the time we were concentrating on classes and homework. We had some extras, but not many.

                                        I went to a top school with no loans, however, if you got a good summer job, you could pay for half of your college expenses.

                                        We need a few things for this situation. The first is some good cost cutting at the colleges and the second is running three semesters per year instead of two instead of a three month summer vacation.

                                        The schools could utilize their facilities year round and students could get a four year degree in three years at a lower cost.

                                          • PEM
                                          • NJ
                                          NYT Pick

                                          Perhaps it is time for students to follow courses of study that actually have a career path. It is what my children did..One is a 36 year old veterinary, with an original loan debt of $65000 ..she has a high paying job, is paying off her loans and is also a home owner. Our son, in his late 30’s, has a Masters in International Affairs and Security Studies and has paid off all of his debt after attending Georgetown and getting a job in the defense sector.

                                          Not sure what the answer is. I went to McGill in Montreal over 40 years ago, in a country with heavily subsidized education. I still had a year’s salary in student loans to pay off. In today’s dollars it would approach the same high debt that so many people face today. It really hasn’t changed much…it just seems so because of the obscenely high tuition figures and inflation rates we are looking at today.

                                          Unfortunately, we can’t really afford for everyone to go to a 4 year Liberal Arts college and study whatever takes their fancy. There are plumbers and electricians making more than my children do and they have a much better lifestyle. They are probably a lot happier too. Perhaps students should be encouraged to study things that will ensure a well paying career instead of heavily encouraging 4 year college attendance; or at least encourage study in the fields where workers are needed. That is my 2 cents worth.

                                            • K Bronson
                                            • Louisiana
                                            NYT Pick

                                            I realize that everyone’s situation is different and stuff happens in life but I don’t think this is comparable to what some of these kids are going through now. $20K was not starvation money in the mid-80’s. I managed to save money on 17K at that time with a stay-at-home spouse and child.

                                            Some of these kids in trouble now have debt that is 3 or 4 times their income–despite working second and third jobs. 5K a semester was an awful lot of money to pay for college in my region in the 80’s. I was spending substantially less than at that time that for an entire year at a good state university. I know it sounds harsh but you bought top shelf with borrowed money and didn’t service the debt. Who do you think should pay it? Those young people trying to live in this economy that our generation ruined? Those of your peers who were more judicious in their choice of school or worked side jobs and ate beans and rice until their debt was paid? I empathize with your struggle but not with your entitlement.

                                              • Jenny
                                              • New York, NY
                                              NYT Pick

                                              I was one of those who graduated 25 years ago with a master’s degree I needed for my profession. My undergrad, for the most part was paid for scholarships. We were blessed with low tuition, but my luck ran out when I went to pursue the other degree. Even then, I ended up being saddled with nearly $20K in debt and that time, you had to repay in 10 years and you couldn’t consolidate. I couldn’t lean on parents or dead relatives, but the end result was the same: I was unable to establish a solid financial background due to student loan debt. When it came time for me to “make it up,” real estate prices were astronomical and out-of-reach for my budget. And it also has an impact on retirement savings.

                                              What is needed is a way to rein in higher education costs, because one can’t really advance without training or additional education these days. This is also a factor contributing to the long-term unemployment gripping our country; the displaced can’t find a way to retrain affordably. We can’t copy the European model due to sheer numbers and the lack of political will. In addition, we need bankruptcy reforms addressing student loan debt. In terms of debt forgiveness, we need also to find a way to lessen the burden of our young and talented who actually did work and invest time and money into their education.
                                              For this country, such a measure is not a hand out, but an investment in our future.

                                                • Bat
                                                • NYC, NY
                                                NYT Pick

                                                I hope that your thrust in this article will not be to recommend that many people not go to college (or its equivalent) What we need is a stronger commitment to education. As a smart person who had the second highest PSAT in my graduating class, I hoped to go to college, three times I tried and all three times events happened which left me in debt. Now I am 53, do not own a car or drive, and basically my life is still on hold- I have not had a life, basically, because no matter how good you are, employers will never take you seriously without a degree, and other people will take credit for your accomplishments.

                                                In the sciences, an MS or PhD is the entry level of education. I think what is happening is that we are improving productivity so much that the number of people who once were needed to turn the wheels of industry simply are not needed and we should accept the fact that many of those searching for employment will never find it unless we renew our social contract and make education available based on merit instead of money. Many countries already do this.

                                                The US is dropping the ball and many of our brightest young people are spinning their wheels, frustrated because they cannot afford college. Without college they will never get that chance they need.

                                                  • Rachel
                                                  • NYC
                                                  NYT Pick

                                                  “When the European and Canadian governments tried to raise college tuition, the students organized massive demonstrations in the streets. That’s why they have free tuition and living expenses besides, as we did in the 1960s.”

                                                  Ah, so its the students’ fault? Europe and Canada have a viable social contract between the government and the people. There is an expectation that the government owes the people something. The U.S. doesn’t have a viable social contract, and young people understand that, even if they can’t articulate it. It doesn’t matter if you protest; people protested the Iraq War and the bank bailouts, and there was no policy change. If a bunch of first graders are shot, there’s no policy change. Young people voted for Obama and he wasn’t able to accomplish much because 50% of the country and 95% of the wealthy want no government whatsoever. Our current Congress sees cutting student aid as a move in the right direction.

                                                  The people protesting in 1968 grew up in a time of unrivaled prosperity because of many factors, including a strong social safety net. Then the Baby Boomers got into power in the 1980s, and slowly cut away the social contract that created the prosperous childhood they had. It’s a little rich for people of that generation to ask why students today don’t protest. Young people recognize the reality on the ground. And it’s Baby Boomers who are leading the Tea Party movement. Having pulled up the ladder, they’re angrily defending the bottom rung.

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