How College Debt Is Crushing the American Dream
Policy + Politics

How College Debt Is Crushing the American Dream

iStockphoto/The Fiscal Times

Megan Curtis put herself through college and graduate school by working part-time jobs and taking out substantial student loans. The southern California native dreamed of a career in international affairs, but she struggled for more than a year to find a job after obtaining a master’s degree from George Washington University in 2006.

Saddled with $82,000 in college loans and no immediate full-time job prospects, Curtis had to defer payment on her loans during a prolonged job search in Washington, D.C. Finally, she landed a job with a consulting firm as an international trade analyst. But with an entry-level salary of $60,000 to $70,000 a year, she has had to stretch her paycheck to cover her rent and living expenses and the $600 monthly installment on her college loans.

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Now age 30 and sharing an apartment in Northwest Washington, Curtis belongs to a generation of well-educated young people struggling to navigate one of the worst economies of modern times while shackled with student debt that seriously restricts their mobility and options.

“I’m able to make everything work,” Curtis told The Fiscal Times.  “[But] I have to pay for a wedding and don’t really have the funds to do that. I’m able to save a decent amount, but not as much as I would like. It also means I’m deferring home ownership and things like that.”

The combination of long-term unemployment, vanishing entry-level jobs with health insurance benefits, and the unprecedented levels of student debt have conspired  to shatter the  traditional American Dream for many young people who aspire to a middle-class lifestyle.

Last year, student debt in the U.S. surpassed $1 trillion, and for the first time exceeded the total amount of credit card debt, according to the Federal Reserve Bank of New York. At the same time, the default rate on student loans is rising: The Department of Education said last September that 8.8 percent of borrowers had defaulted in their first two years of repayment, up from 7 percent the previous year.
President Obama recently outlined proposals for addressing the crisis of runaway college costs and burgeoning student loan debt – a phenomenon that is leading to what the Atlantic Monthly has dubbed “the hollowing-out of the American middle class.” Many young people say they feel their college loans are a like an albatross around their necks.

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“It’s the most untalked about issue going on right now,” said Aaron Calafato, 28, a professional actor and storyteller who lives with his wife, Heidi, in the Cleveland area. The couple jointly owes nearly $160,000 in college loans, and they find it hard to make the $1,100 monthly payments on a combined annual salary of about $50,000.

“To me you have a young, college-educated consumer class that for the first time in modern American history is worse off than their parents,” Calafato said. “And they’re moving back home, and they can’t afford groceries and they can’t afford a car . . . And I really believe that is a significant reason that adds to this sort of stalling, flat-lined economy that we have right now.”

Some of these problems are self-inflicted. Many college students and their families have signed on for bigger loans than they can handle, or they did not bother to read the fine print to understand fully the impact of compounding interest or penalties for missing payments. And private lending institutions, including student loan giant Sallie Mae, take a harder line in collecting on their loans than do subsidized government programs.


“The economy poses a significant challenge, but still only 4 percent of our private education loans are in forbearance,” said a spokesperson for Sallie Mae. “Of those, the vast majority get back on track. Oftentimes, people who initially ask to postpone their payments find other solutions because they realize that postponement of payments increases the amount of interest they will ultimately pay.”

Nonetheless, many young people taking out student loans quickly find that the deck is stacked against them.  For one thing, the cost of a college degree has grown at three times the rate of inflation since the late 1970s, according to Bureau of Labor Statistics data. Much of that was fueled by government subsidies of tuition, which created greater demand for college degrees, but in turn gave colleges and universities incentives to jack up tuition and fees.

Moreover, with the rapid growth over the years of for-profit on-line colleges and universities, such as Phoenix and Kaplan, young people, single parents and veterans have been aggressively recruited to sign up for expensive courses and finance those courses with government or private loans.

Calafato spent a year working as an admissions adviser at a for-profit college in the Cleveland-Akron area and has just produced a one-man play called “For Profit,” which dramatizes some of the more unscrupulous practices of these schools. “I couldn’t handle it,” he said. “It was one of the most unethical and jarring experiences of my life.”


Once viewed as a reasonably priced ticket to a good job and promising career, a four-year college education these days can cost a family as much as nearly a quarter of a million dollars – the  equivalent of a corporate executive’s annual salary – with no guarantee of a good-paying  job to follow.

For example, a moderately priced publicly supported school currently charges in-state students an average of $21,447 a year for tuition, room and board, while a moderately priced private school charges an average of $42,224, according to the College Board. But the annual cost of attending Harvard and other more prestigious private schools can range up to $60,000 a year.

Interest rates on federal loans are capped by law – currently at 6.8 percent – but private loans from Sallie Mae and others can be 9.48 percent or higher, depending on the terms of the agreement. Moreover, the interest rate on the highly popular federal Stafford college loans will double in July – from 3.4 percent to 6.8 percent – unless Congress intervenes.  Such a leap in interest rates would cost students on average an additional $5,000.

Erin Currier, project manager of the Pew Charitable Trust’s Economic Mobility Project, said that   research as far back as the 1960s leaves no doubt that a four-year college degree “translates to direct [positive] income differences and mobility, even though it might be difficult right now.”

“But this question of how the recession has impacted young people and what do we expect of this so called ‘Lost Generation’ is a very important and powerful question,” she added. “With all the economic turmoil in the past four years, there’s good reason to think that downward mobility is more severe.”