Growing Global Student Debt Fuels Search for Solutions

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Student loan debt is a worldwide problem. In the United States, the country’s overall student debt reached a record $1.6 trillion this year. The average person with student loan debt in the U.S. owes between $20,000 and nearly $25,000. In Japan, the group that oversees the government’s student loan system recently reported it has been lending over $9 billion to students every year since 2010. Similar conditions exist in Africa and South America, says former United Nations Population Division director Joseph Chamie. He suggests several reasons for high student loan debt. One is that employers everywhere have increased their demands for skilled workers, making higher education a requirement for many jobs. This means more students are seeking higher education worldwide than ever before. At the same time, governments are investing less money in public colleges and universities. They are refusing to raise taxes, and use existing tax money to meet other needs, Chamie says. So, more students are attending private institutions, which are often more costly. However, students often find that once they complete their education, their country’s economy is not strong enough to support their financial needs. For example, about 28 percent of four-year degree holders in Malaysia had no job in 2015. “A lot of them, when they’re finishing, are either unemployed or underemployed, so their ability to pay back the loan becomes a problem,” Chamie told VOA. Even in countries like Sweden, where attending university is free, about 70 percent of students still borrow an average of about $20,000 total. That is because students still face other living costs, like food and housing. As student debt has become a global problem, countries are seeking ways to solve it. Australia, for example, has established a system where students do not have to pay anything back until they are earning at least $40,000 a year. In the U.S., several candidates running for president in the 2020 election have offered more extreme solutions. Senators Bernie Sanders and Elizabeth Warren suggest it is in the nation’s best interest to forgive all or at least some of these loans. Some researchers recently asked what the effects of debt forgiveness might be. Ankit Kalda is an assistant professor of finance at Indiana University. In September, he and researchers from Harvard University and Georgia State University published a study on debt relief. Their study came out of an unusual situation. In 2017, U.S. courts found that a large financial organization had made mistakes in its record keeping. The company could not show that it owned the debt of 2,000 borrowers. Therefore they had to remove it. And so suddenly, a number of people were told they did not need to pay back the money they had borrowed. Kalda and his team looked at what happened to some of these people. The researchers found that, overall, sudden debt relief greatly improved the borrowers’ lives. For example, not only did they have more money – they were more likely to move to a new area and seek better paying work. In time, they began earning more money, on average about $3,000 more a year. In addition, they no longer had negative information about late or missed debt payments on their credit report. A negative credit history can harm a person’s ability to find a well-paying job in the United States. Charlotte Hancock argues these findings are evidence enough that some kind of debt relief plan must move forward. Hancock is the communications director for Generation Progress, the youth centered research and activism part of the Center for American Progress. Young people are just entering the time in their lives when they can be financially independent, start families and really add to the economy, she says. But their ability to do so is greatly limited if they have debt hanging over them. “Even beyond some of the financial stresses here, the mental burden…just being thousands of dollars in student debt that you feel you’ll never be able to repay is huge,” said Hancock. Generation Progress suggests several ways debt relief could happen. They suggest policy makers could require lenders to change their agreements to lower interest rates, for example. They also suggest either total or partial debt forgiveness. Yet Ankit Kalda and his team do not actually support debt forgiveness. Their research does not include a look at what might happen to financial institutions or the overall economy if debt were totally forgiven. It only looks at how debt forgiveness would help the borrowers. Kalda also warns of some other possible negative effects. “If as a borrower I know that if I run into any trouble I would be saved because I’m going to get this debt relief, then I might actually become more inclined to be more reckless with my borrowing in the future,” he said. No matter what, he and Hancock agree that if countries do decide to approve some student debt relief, the neediest students should be helped first. I’m ­Dorothy Gundy.

And I’m Pete Musto.

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