COMMENTARY | The student loan debt crisis is enormous and a bursting bubble could drag down the entire U.S. economy. The Associated Press reports that two-thirds of 2011 college graduates had student loan debt, up 5 percent from the year before, and the average debt load was $26,600. To help with such a nationwide debt burden, the Obama administration has passed a federal student loan “Pay as You Earn” repayment plan based on graduates’ discretionary income that goes into effect on Dec. 21. College graduates would have their loan repayments capped at 10 percent of discretionary income and their loans forgiven after 20 years. This program, which is considerably more generous than a previous version that had a higher cap and lengthier repayment period, is available to some 1.6 million college grads.
This program sounds great, especially to college students, but could cause more harm than good. The focus to easing the student loan crisis needs to be on reducing the cost of college, not spending more tax dollars subsidizing loans. The Pay as You Earn plan tacitly encourages colleges and universities to keep tuition and fees high, knowing that incoming students are more likely to opt for more expensive education “packages” based on the assumption that Uncle Sam will be be generous later. Pay as You Earn is medicine that treats the symptoms but does nothing to cure the disease.
A second problem involves the increased rates of underemployment for today’s — and tomorrow’s — college graduates. With federal student loan payments capped at 10 percent of graduates’ discretionary pay we all suffer from rampant underemployment among young college grads. Higher and higher percentages of twentysomethings will graduate with tens of thousands of dollars in federal debt and have to pay them off with low-paying hourly jobs. By making this meager payment acceptable the government is effectively condoning underemployment and overeducation, telling the public it is fine to let those with Master’s degrees languish as baristas, waiters, clerks, and cashiers.
Making underemployment acceptable harms both society and the young people who suffer from jobs that do not utilize their skills and experiences. Young people will have less trouble paying back their student loans but will struggle nonetheless, living in a nation that applauds itself on paying off student debt but avoids trying to increase the number of good jobs that pay salaries and benefits. We’re throwing twentysomethings a band-aid, nothing more.