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College Debt
How does college debt affect the individual and the
economy?














Ranira Johnson
Senior Seminar
Mrs. Lindinger
February 18, 2014
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According to Cohn (2012), a CNBC Senior Correspondent, two-thirds of college
graduates in 2011 graduated with an average student loan debt of $26,000. Although there are
numerous outcomes of debt, college debt affects the individual and the economy both negatively
and positively. First, college debt affects the economy negatively because people will have less
money to spend on housing, food, and activities so these parts of the economy will suffer. In
addition, the consequences of not paying back loans can result in ruining a person's future, such
as getting sued or not being able to move away from home for college due to paying back the
debt from income. However, the cost benefit analysis proves the college debt experience is
actually worth it. These are the reasons how college debt affects the individual and economy
both negatively and positively.
In the article How Debt Works- Good Debt vs. Bad Debt written by Dave Roos on the
website How Stuff Works, the differences between good and bad debt are explained. First, good
debt is an investment that will grow. Second bad debt is things that are purchased that are either
unnecessary or lose their value over time.
In the article Student Loans Explained written on the website GoCollege, student loans
are elaborated on abundantly. First, loans are the most common funding sources for college.
Second, loans must be paid back. Finally, loans keep graduates in debt for 10 years or more.
In the article Your Options When You Cant Repay Student Loans written on the website
Find Law, information about repaying student loans is listed. First, the options for repaying
student loans are very rare. Second, the consequences of not repaying student loans are severe.
In the article The Debt That Wont Go Away written by Scott Cohn on December 20,
2010, Kyle McCarthy, who has gone through not being able to pay his college debt back,
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explains his experience. In addition to that, the consequences for not paying back college debts
are explained.
In the article Student Loan Debt: There Are Solutions written by Clyde Weiss in
September 27, 2013, President Barack Obama created the Bipartisan Student Loans Certainty
Act that caps interest loan rates to prevent increases on debts. Also, Congress created a loan
forgiveness program for people getting careers in public service, including service members,
teachers, and first responders.
Today, almost 40 percent of American high school graduates do not enter college directly
from high school. Post-secondary school enrollment and completion rate for blacks, Hispanics,
and students from low-and-middle income families, through increases, is significantly lower than
for whites from high-income families (Wishnietsky, 2001).
College is the path of success in life when it comes to many people in this world. Without
college, you will force yourself down a lane of unsuccessfulness. By attending college you open
more opportunities for yourself. In example, it would be easier for a person who has pursued
secondary education to obtain a job versus a person who does not. Therefore, this makes it able
for an individual to gain the skills and knowledge they need in order to meet internal and
external life goals (Wishnietsky, 2001).
Although many people favor going to college, however, what's not in favor is the tuition
fees. Besides tuition fees there is also housing, food, books, supplies, and living expenses such as
transportation.

College Tuition & Fees
Public In-State - 2 years $3,264
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Public In-State - 4 years $8,893
Public Out-State - 4 years $22, 203
Private - 4 years $30, 094
(College Cost FAQs, n.d.)
When it comes to tuition people are dealing with many different numbers based on the
type of college, its location, tuition and fees, and what the college is offering. Staying in state for
college is always cheaper than leaving and going out of state for college, except when attending
private college. Private colleges tuition and fees remain the same no matter where the persons
residency is, meaning in or out of state. . Tuition fees for a public in-state two year college
averages $3,264. While on the other hand, tuition fees for a public four year in-state college
averages $8,893. To go out of state for college tuition fees averages $22,203. Of course a private
college would be a little more than all of the other options. The tuition fees of a private college
averages $30,094. Overall, attending college can be expensive in some cases especially when it
comes to a person's income (College Cost FAQs, n.d.).
As of 2013, upper-middle class families, who are those with annual incomes between the
80th and 95th percentiles, seem to be the most struggling with college debt. Households with
annual incomes of $94,535 to $205,335 had the biggest percentage with student-loan debt from
2007 to 2010. From 2007, the loan debt rose from 15.2 percent, $26,639, to 19.1 percent,
$32,869, in 2013 (Simon, 2012).
Besides the upper-middle class families, lower income families borrowing has increased
but not that much because lower income families try their best to choose low costing schools that
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financial aid pays majority of the tuition and fees. Additionally, they automatically receive grants
and scholarships that pay three percent of tuition (Simon, 2012).
If a person cannot afford to pay for college, a first option for paying tuition and fees is to
look at financial aid options. This is where scholarships come in. There are academic and athletic
scholarships. However, at times people do not fall underneath either category and resort to
student loans (Scholarships, n.d).
As a result of not being able to pay for college, students take out student loans, if
scholarships are not an option. Student loans are distributed by the federal government to help
students pay for university tuition, books, and living expenses. When it comes to student loans
there are many different types that are offered to students. (OffToCollege, n.d.).

Name of Loan Description of Loan
Stafford Loans most common; unsubsidized or subsidized
Perkins Loan low interest rates
PLUS Loan covers what financial aid lacks
Consolidation Loan combines pre-existing loans
Institutional Loans non-federal aid
Private & State Loans beneficial to qualifying students
(American Student Assistance, n.d)
In average, there are about six different types of student loans. Student loans tend to
come subsidized, meaning that the government pays the interest on the loan, or unsubsidized,
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which is when the interest rate is relied on the student to pay off. First there is the Stafford Loan,
which is the most common federal education loan that is distributed and come unsubsidized or
subsidized. Second is the Perkins Loan, which has low interest rates and are given to students
who have exceptional financial aid. Third is the Parent Loan for Undergraduate Students (PLUS)
Loans, which covers expenses that financial aid lacks. However, with PLUS Loans only
dependent students parents or graduate students can apply. Fourth is the Consolidation Loans,
which puts one or more pre-existing loans together that a student already has with a fixed interest
rate and a longer term. Fifth, is the Institutional Loans, which is non-federal aid that the school
loans students. Lastly, are Private and State Loans. These loans are not financial aid but are
beneficial to students who do not qualify for student loans or do not receive a lot of aid
(American Student Assistance, n.d).
In order to receive any type of student loan, a person must be able to qualify for it. It was
found that the student must be an U.S citizen or a permanent resident, prove that financial aid is
required, be a full time student at a college, and maintain a passing grade in at least 60 percent of
college courses. Aside from that, a persons past also takes part in determining if a person
qualifies for a loan. Additionally, in the past a student may not have failed to pay any loans and
any bad standing on loans. Jointly, if a student has not reached their student loan limit, they
might also qualify for a loan (Paul, Wade, Barratt, n.d).
Besides qualifying, there are many pros and cons that come with student loans. First,
there are not any credit reports. On the count of the funds being guaranteed by the federal
government, a person's credit report is not used in qualifying them for the loan to see if they need
financial aid. Secondly, there are low interest rates. Student loans are fixed rate loans that remain
fixed for the entire term of the loan if it is an unsubsidized Stafford loan. People who are in post-
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secondary school have an average rate of 6.8%. Current rates are lower than most other financing
options. Thirdly, there are flexible repayment plans. Student loan payments do not have to be
repaid until 180 days after you leave or graduate from school. The federal government offers
flexible repayment plans that can fit many people lifestyles. Students can additionally combine
their federal loans into one, low repayment plan. Although there are many pros, the cons seem to
overshadow the pros (OffToCollege, n.d.).
Firstly, are the low amount limits, which is the biggest disadvantage of them all. For first-
year, dependent students the maximum they can get loaned is $5,500. Secondly, it requires
federal filings. Students must file the FAFSA form with the Federal Government in order to
apply for Stafford loans. Thirdly, students have to file and apply for a loan each academic year.
Fourthly, students cannot use their loan to pay other education-related expenses. Although the
cons are plentiful, many people continue to use student loans (OffToCollege, n.d.).
The majority of college students dont educate themselves with loans causing them to
land in college debt. They will take out student loan after student loan until they take out so
much that they cannot pay anything back. "And not all debt is considered bad debt, unless of
course, you take out an irresponsible loan, which shows that there is a good debt and a bad debt
(Hynek, 2013). College can become a good debt if a person gradates college and gets a high
paying job to pay back the loans. However, college can become a bad debt, if a person drop out
of college or they do not get a high enough paying job to pay back the student loans
(HowStuffWorks, n.d).
College debt will affect the individual in many different negative ways. When someone
fails to repay the loans they have taken out the Federal Government will get involved in many
ways. Firstly, the federal government can take a persons state or federal tax refund. "Federal law
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allows only state and Federal Government agencies (not individual or private creditors) to take
your refund as payment toward a debt", which shows how you can have your tax refund
garnished (TurboTax, 2013). A persons tax refund can be taken without permission, although,
they will be notified eventually of the garnishing of their taxes (TaxRefundGarnishment, n.d.).
Along with a person's taxes, their professional license being revoked is another
consequence. A persons professional license can additionally get revoked. Anyone in the
professions of a doctor, lawyer, accountant, etc can have their state license taken from them if
they fail to pay back student loans. Moreover, for medical professionals, a federal student loan
default "effectively eliminates 98% of your employment opportunities. If you're excluded from
the Medicare program, no other provider that takes Medicare can contract with you in any form.
I tell my clients, 'You can't even cut the grass at a hospital, or they will lose their Medicare ,
which shows how not paying loans back can end Medicare so simply (Khalfani-Cox, 2010).
Another benefit that is taken from a person that is used to pay back loans is social
security benefits. "Social Security benefits can be garnished to repay Federal debts", which
shows that garnishing a persons social security benefits is another way to pay back a federal
student loan (IllinoisLegalAid, n.d.). Social security income is what many seniors rely on after
retirement. Originally, taking social security benefits were protected so that they could not be
touched. However, a law created in 1996 allows the Federal Government to touch social security
income with limits. Firstly, a persons first $9,000 of social security cannot be touched at all.
Secondly, regardless of how much money people are being paid, the federal government will not
take more than 15%. Therefore, having a person's social security benefits taken can sometimes
ruin their future plan that relies on social security benefits (Facts For Older Consumers, n.d.).
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Credit is another thing that can ruin a person's future. "It is imperative that you not miss
student loan payments. Missing payments, as already mentioned above, will hurt your credit
score", which shows how not paying back loans can ruin a person's credit (AllTuition, n.d.).
After 180 days of a non-payment, credit card accounts are sent to a collection agency. The
creditor and the collection agency are not required to make it aware the account has been sent to
a collection agency. What determines how bad your credit is hurt is a persons original credit and
how much is owed. The higher someones credit score, the more points they lose or the more
they owe, the more they lose. Therefore, a person's past contributes to their credit when having to
pay back loans. (HowDebtsInCollections, 2012).
Once a student is in debt it eventually begins to affect the economy. Just a little past $17
trillion, $17,075,590,107,963.57 to be exact, is the U.S. national debt owed by the Federal
Government. About two thirds of United States' debt is public debt. Public debt is money owed
to people, businesses, and foreign governments who invested in bonds, treasury bills, and notes.
The remaining amount is owed by the government. However, the question still remains, how did
the United States get into so much debt (Amadeo, n.d.)?
Based on many sources, the debt contributors were past and recent presidents. The main
contributor would have to be US' recent president, President Obama. He has created three
different budget deficits. He created the economic stimulus package in February 2008 to start
economic growth, which ran about $800 billion. Obama wanted to save jobs and reduce
employment so that more and more people could contribute to the economy to produce growth.
He also uses about another $800 billion a year for military spending, which pays for the war
(Amadeo, n.d.). In 2009, Obama also started the Obama tax cuts for middle-class families and
small businesses (PolitiFact.com, n.d.).
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The runner up contributor would have to be President Bush. He created two different
budget deficits starting with the bank bailout (PolitiFact.com, n.d.). In October 2008, President
Bush created the Bailout Bill. The Bailout Bill was made to rebuild the U.S financial system and
help out credit markets (Sahadi, 2008). After the 9/11 attack, Bush declared War On Terror to
protect U.S. citizens. He sent troops out to Iraq. The costs of sending soldiers across the country,
new military hardware, and other military cost totaled up to $1 million contributing to the U.S
debt (Thompson. 2008).
President Regan participated in the budget deficits also. He spent money on trying to
keep the U.S. safe, cut taxes, and expanded Medicare. Along with Bush and Obama, he too was
trying to produce economic growth (TheReganResidency, n.d.). Those presidents were trying at
any angle to rebuild the economy but resulted in landing the U.S. in even more debt. With all of
this going on, the United States economy was being slowed down (Amadeo, n.d.).
However, many college students were not aware of their contribution to this debt. When
students take out loans and land in debt they may think that the little money they owe is not that
major. Little do they know, the small amount of money they owe to the federal government is
adding on to the $17 trillion already owed (Amadeo, n.d.).
Students who default on paying back loans are adding on to the reducing of economic
growth. The consequences of massive student debt could hurt the standard living for this current
generation and the countrys economic competitiveness. "Individuals with more student loan
debt were less likely than individuals without student loan debt to purchase homes or cars,
which shows that the economy cannot function well if students have to be forced to put off home
ownership. (Freedman, 2014). Furthermore, if students do not have a home they as well do not
need things to put inside of it, such as a television, food, and furniture (Klosowski, n.d.).
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Although, there are many steps students can take to avoid running into college debt. To
start it off, always apply for all scholarships and financial aid. Nine times out of 10, there are
scholarships out there that fit students categories, such as a main educational or athletic talent or
strength. They have academic scholarships along with sport scholarships. Students should take
all chances and apply for any and all scholarships on many websites, such as Scholarship.com,
Fastweb.com, Zinch.com, etc (OffToCollege, n.d.).
Save from an early time. It is never too late to start saving. Save as much money as
possible because college can be expensive. If enough money is saved, students wouldnt even
have to think twice about borrowing someone elses money and having to pay it back
(OffToCollege, n.d.).
"Attending a community college before transferring to a four-year school could offer
some good benefits one being cost. Community colleges also give students a chance to
improve their grades if they performed poorly in high school and to earn associate degrees before
transferring", which shows that attending a community college can be beneficial to many
students (Fortenbury, 2013). There is nothing wrong with starting at a two-year community
college and working up. Eventually, students can transfer into a four-year university.
(OffToCollege, n.d.).
Borrow money based on knowledge. It is best to go with government-sponsored Stafford
loans for students. The interest on government loans are 6.8 percent. The rate gets lower if
students are eligible for financial grants. With that in hand, students shouldnt have to resort to
any other loans, such as private loans (OffToCollege, n.d.).
On the other hand, going through college debt can be beneficial in many ways. Some
people who go through college debt finish college with such a good degree they can get a good
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job to pay off their debts in no time. Also, people who have the college debt experience develop
all the knowledge about loans. Therefore, further in the future they can give others, such as their
kids, the pros and cons about student loans. Finally, a person who goes through college debt and
finishes college with a degree has not only gone through a good debt but has also proved the
Cost Benefit Analysis right. They turned their bad debt into a good debt (Roos, n.d.).
It all comes down to the Cost Benefit Analysis (CBA), created by Jules Dupuit in the
1930s. Cost-Benefit Analysis is something people use for non-critical financial decisions where
large sums of money are involved. CBA basically adds up all of the benefits of an action and
then compares that to the cost it comes with. Along with the CBA, there is a payback period in
which people wait for the benefits to repay its cost. This payback period often comes in about
three years. "However, bear in mind that Cost-Benefit Analysis is best for making quick and
simple financial decisions. More robust approaches are commonly used for more complex,
business-critical or high cost decisions, which emphasizes that the CBA is a great tool to use for
college decisions such as taking out loans (MindTools, n.d).
Kyle Cope, an unemployed 25 year old, is in $150,000 student loan debt. Cope graduated
Asbury University in 2011 and earned his bachelors degree in financial mathematics and
political science. He went back to college at the Patterson School of Diplomacy and International
Commerce at the University of Kentucky and accomplished getting his master's degree.
Although, he made various achievements, he still ended in college debt.
Cope was raised in a low-income area of Washington, DC. The fact that he moved away
to attend college made it even less affordable. He took out loans, which caused him to be in a
$150,000 debt. As of now, Cope is working at several jobs, such as a chief economist and a
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researcher for the Financial Crisis Inquiry Commission, just to pay off his debt. Using his money
for anything other than paying off his college debt is out of the question (Cope, 2013).
In any case, more than likely, Kyle will spend his whole life trying to pay off his debt. He
will not be able to contribute to the economy, meaning he will not be able to buy a car, a house,
or any things to put in a car or home. If he does not pay off his loans on time or even at all, he
will suffer the consequences of the government taking his tax refund, federal benefits,
professional license, and social security benefits.
The debt was a downfall for Cope but he did make a benefit from it. The loans he took
out caused him to be able to not only attend and complete college but also with the degrees he
earned, he became both a chief economist and a researcher. Cope decided to take the bad and
turn it into good.
Depending on the way it is looked at, college debt can affect the economy both
negatively and positively. The economy will suffer due to people having insufficient funds
resulting in not being able to contribute to economic growth. People will suffer consequences for
defaulting in their student loans. However, the college debt experience is shown to be worth it
through the Cost Benefit Analysis. These reasons substantiate how college debt can affect the
individual and the economy both negatively and positively. In all, this just makes you think, is
college worth it or not.









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