Student Loan Debt Rising, Next Bubble to Pop?

By Sunny Bhatnagar

Shahrukh Munsif, a 19 year old computer science student and sophomore at Polytechnic Institute of NYU has more to worry about then keeping up with his assignments and getting good grades in college. Like many other students across the country, he is burdened by a growing student loan debt, money he needs to borrow in order to pay the tuition hikes at his school, which rises every three years. Munsif says, “I don’t know how I will repay the loans I have taken, I am hoping for a job out of graduation, but it’s something constantly floating in my head.”

A college degree used to be a window to more opportunities. Now more than ever, the growing problem of student loan debt has affected many college students, especially those in New York schools, who have to take on increasingly more debt in order to obtain their education.

According to a 2011 report from the Project on Student Debt, part of the Institute for College Access and Success, the average student loan debt in New York State is $25,851. Every three out of five student or 60% are in student loan debt. According to its website, Polytechnic Institute’s fees for the 2012-13 school year are $39,564. The Project on Student Debt says that the average debt of graduates in 2011 was $24,862 and the proportion of graduates with debt was a staggering 71%.

Outstanding student loan debt now stands at $956 billion, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. It has increased by 4.6 percent in the third quarter from the last quarter. Tuition and fees are rising and the duration of borrowing will continue to increase. Soon more and more people will be unable to pay back their loans. As students continue to need private loans to fund education, and banks continue to provide these funds, the student debt problem can become the next financial crisis after the mortgage crisis debt bubble exploded and put the United States economy into a recession. This will then lead to an eventual bailout for the banks.

The student loan crisis has many implications for the economy as a whole. At institutions small and large all over the country, tuition rates have increased. At the same time, scholarship opportunities and grants have decreased, creating situations in which many more students must rely on loans to complete their degrees. Many students are trapped in a situation that is very difficult to escape. Umesh Somrah, a 20 year old engineering student and junior at Polytechnic Institute of NYU says, “The reason I came to Poly and chose not to get a job was because of their reputation and rigorous academics, not for them to raise tuition without any added benefit.”

Shahrukh Munsif wishes he could help his parents. He says, “I hate the fact that I am putting so much burden on my parents. I wish I could work, but courses are so challenging I feel that if I do, my GPA will be severely impacted.” Currently, his parents are helping him out getting his loans, but he hopes to pay back the loans with his own efforts. He does receive a work-study grant and is a teaching assistant of the Freshmen Engineering Ideas forum at the Polytechnic Institute of NYU. This is one of the better positions where he has a chance to be promoted as he works through guiding other students make their transitions from high school into the “college experience.”

The college experience is a time to gain your independence and take on more responsibility. Experimenting and experiencing new things are all a part of this experience. Ray Fu, a 22 year old management student and senior at NYU Stern School of Business says, “Loans are a part of college and a necessary hurdle which is really an investment in yourself, to improve and learn.” People often make mistakes, but learning from these mistakes is what’s important. Munsif feels that college is a time to be enjoyed, but also a time of discovery. “I would like to experience living independently, but room and board or rent is so high, I have no choice, but to live with my parents.” He sees loans and tuition as necessary stepping stone in order to move ahead in life and become successful. Munsif would like to become a computer programmer at Google designing, writing, and testing the source code of computer programs. In US News & World Report’s Top 10 Jobs in 2012, computer programmer was in ninth place. There was a 7.9 percent unemployment rate, median salary of $71,380, and number of news hires at a steady 43,700.

What can be done about student loan debt if you just can’t pay it back? A little bit over seven years ago, private student loans could be discharged in bankruptcy, just like any other unsecured consumer debt. The Bankruptcy Reform Act of 2005 exempted private loans from bankruptcy and from the normal business risk of loan default. Lenders can ask any terms from student and parent borrowers without worrying about the chance of a loan default.

Munsif feels that there is a long way from overcoming the problem of student loan debt. For him it is a small part of life, leading to bigger and better things. He says, “Life is tough, but if it wasn’t it would be called something else.”