bjbj"9"9 judy woodruff: now: the first oftwo reports on the ever-growing student loan debt problem. newshour economics correspondentpaul solman tallies up the larger toll it's taking and what it means for new graduates.it's part of his ongoing reporting making sense of financial news. paul solman: america'sage-old academic rite of spring: commencement. degree in hand, graduates are about to beginreal life and the world of work. what's different these days is the cost of that degree, andthe extent to which it's been financed with debt. americans owe $700 billion in car loans,more than $800 billion on our credit cards. but student debt now tops $1 trillion, andit's not just weighing down the 37 million former students who owe it, but the wholeeconomy. here's economist paul krugman in
a recent public interview. paul krugman, columnist,the new york times: the preponderance of the evidence is that the biggest single factorkeeping us where we are, keeping us in this depression is the overhang of debt. paul solman:and student debt, we asked him a few days later. paul krugman: household debt is thebig ball and chain on this economy, and student debt is a big part of it. paul solman: buthow, you might wonder, could people like ricky evans, age 32, who works in finance in thed.c. area and earns upwards of $70,000 a year, still have student loans of more than $80,000?man: honestly, back then, i barely understood interest rates. paul solman: what about 27-year-oldteacher beth hansen? in addition to working full-time at a maryland middle school, shenow works two other part-time jobs, running
an after-school book club, singing in a churchchoir, and yet earned only $46,000 total last year, while still owing more than $60,000.man: looking for employment? beth hansen, middle school teacher: yes. paul solman: she'snow looking for a waitressing job to make ends meet, working tables after teaching seventhand eighth graders all day. did she understand the load she was taking on? beth hansen: think,how old was i when i signed my first promissory note? seventeen. am i really going to readsaid promissory note from beginning to end? paul solman: or understand it. beth hansen:or understand it even if i had read it. mark kantrowitz, finaid.org: most students willsign whatever piece of paper is put in front of them, and they won't pay attention to it.paul solman: mark kantrowitz is a financial
aid expert. mark kantrowitz: there's no oneout there telling them, don't borrow too much. paul solman: daniel habtemariam, 28, a medicalstatistician who had attended the krugman event, says student debt is depressing prettymuch everyone he knows. daniel habtemariam, medical statistician: i know for myself andas well as for many of my peers, we have put off major life decisions, put off having children,putting off buying a house. my peers don't have enough revenue, they don't have enoughincome, they don't have enough security and enough sort of confidence in their futureincome. paul solman: and the overhang of debt is restraining them? daniel habtemariam: it'sa terrible burden, yes. paul solman: beth hansen is typical. beth hansen: i live ina one-bedroom apartment, and it's the cheapest
one i can find, and it's still 35 percentof my monthly income. that also makes it so much more difficult to pay off my studentloans. and thinking about my life with my future with my fiance, are we going to beable to buy a house? no, because i have no money in the bank. there's no money for adown payment. there's no collateral. paul solman: the standard loan contract allowsanyone who cannot pay, like hansen, to put off payment for years. but the amount owedrises in the meantime, as the deferred interest is added to the total bill. meanwhile, sincethe crash, many public employees have seen their earnings decrease. beth hansen: i haveactually been making less each year because they furloughed us one year. and then, thisyear, they increased the amount that i had
to pay into my retirement. so i have gottena 2 percent pay decrease. and i don't know what they're going to do next year, but there'scertainly been no cost of living increase in four years. paul solman: four years aftergraduating, hansen has just started making loan payments, $468 a month. to cover it,she's interviewing for that waitressing job. will she ever pay off her loans? beth hansen:i may die first, in which case, they would need a copy of my death certificate to finallycancel my loan. judith scott-clayton, economist: college is a very good investment. paul solman:economist judith scott-clayton studies higher ed. judith scott-clayton: your level of educationis the biggest single predictor of your lifetime earnings that you can control, that you cando something about. and so it makes a lot
of sense to borrow, to finance this investment,which is going to pay off over the whole, you know, 30 or 40 years that you're working.paul solman: but tell that to recently minted b.a.s in the job market of the past few years,whose reality has clashed with the pretty picture painted during orientation week. bethhansen: they tell you, oh, you have made such a good decision by joining our family. thisis going to pay off so well in your future, and our graduates have received this and thisaward and that award, and they're prestigiously employed at, you know, x and such. and so,you think that that's clearly what's going to happen for you as well. paul solman: sostudents borrowed money from the government or private lenders, each with different terms,interest rates and payback options. the students
tended to ignore the total tab, or even what'scalled the opportunity cost, the income they might have earned if they hadn't gone to school.now the next generation sees what happened, and may become wary. but a frightened overreactionis also a risk, says economist judith scott-clayton. judith scott-clayton: the risk is that ifthey decide not to go because they're afraid of taking out debt, they may actually endup in a worse situation than had they decided to go. paul solman: now, one reason studentdebt has surged past a $1 trillion, 80 percent of it owed to uncle sam, is because collegehas become increasingly expensive. but the cato institute's neal mccluskey argues that'sbecause of student debt financed by government loans. neal mccluskey, cato institute: themassive inflation we see in tuition, in college
prices, have gone up faster than health care,faster than almost any other major industry. well, that's a product in large part of federalstudent aid. and, again, that's the -- if you give someone $100, you tell them theyhave to use it for college, and colleges know they have it, of course they're going to raisetheir prices. paul solman: the government begs to differ. martha kanter, u.s. undersecretaryof education: federal subsidies are not the reason that college costs have escalated.paul solman: if government aid drives tuition, says undersecretary of education martha kanter,how come prices are rising fastest at state schools? martha kanter: just last year, ifyou look at states, over 80 percent of states have dramatically cut american higher education.institutions of higher education raise tuition
when that happens. paul solman: but no matterwho's responsible, soaring tuitions mean soaring debts mean more defaults. and that's verybad news, says mark kantrowitz. mark kantrowitz: when someone defaults on a student loan, it'slike a trip through hell, i mean, all the negative things that occur, the garnishments,the interception of your income tax returns. your credit is ruined. paul solman: moreover,unlike credit card and other borrowing, congress has legislated that you can't even escapestudent debt through bankruptcy. robert applebaum is an advocate for student loan reform. robertapplebaum, forgivestudentloandebt.com: not only can you not go to chapter 7 bankruptcy,which is a discharge of your debt. you can't go to chapter 13 bankruptcy, which is justa restructuring of your debt, so essentially
refinancing. you go into massive amounts ofdebt just to get an education that you need as a prerequisite to get a job, and then spendthe rest your life paying off that educational debt. there's got to be a better way. paulsolman: the policy question then that hangs over the trillion-dollar student debt overhang:is there a better way, and, if so, what is it? jeffrey brown: paul's next report looksat the move to forgive student loan debt. online, you can figure out whether it's stillpossible to work your way through school. you can use our college cost and income calculator.urn:schemas-microsoft-com:office:smarttags state urn:schemas-microsoft-com:office:smarttagscountry-region urn:schemas-microsoft-com:office:smarttags place judy woodruff: now: the first of tworeports on the ever-growing student loan debt
problem normal microsoft office word judywoodruff: now: the first of two reports on the ever-growing student loan debt problemtitle microsoft office word document msworddoc word.document.8
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