Lastweektonight's List: STUDENT DEBT

29:45 - Richard Hunt, CEO of Consumer Bankers Association
"Since 1980, the average tuition for a 4-year degree has risen 1,100%, more than 4 times the rate of inflation."

Student debt has climbed to a record $1.2 trillion. So if you have a college heading to college this fall, you'll want to help them be financially prepared. Our next guest has tips for them before they leave nest. Rachel, nice to see you this morning.

>> Thanks for having me on.

>> Such a big issue. I remember getting to campus for the first time at university of Pittsburgh and there was like some bank there to get a credit card, sign up for that credit card. I was paying that debt off for years. A huge mistake. So let's take us through those common pitfalls.

>> Well, a parent needs to realize the decision it is that their student makes in these four years can affect them for the next 40 years of their life. So it's so crucial to talk about with your child. Talk about the major pitfalls. Teach them how to reconcile a

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checking account. Teach them not to overspend. Show them how to budget not only their money, but also their time.

>> This reconciling a bank statement, you mean actually balancing the checkbook at the end of month? Can we force our kids to do that now?

>> Shocking, I know. But you want to teach them on do that because a lot will bounce checks while in college. You don't want that. And again, you're instilling be habits that they can take into the real world. Adults even need to be budgeting their checkbook. If they can do it as a college student, they're off to great start.

>> My wife is great about it. Her dad taught her when she was little and still does it today and kind of a nerd about it, but tfinances are in order. You say talk about the dangers of debt and let people know if you take out this credit card now, you might be paying off that Chinese food you bought ten years later.

>> That's right. The free t-shirt and free pizza turn into $4,000 of credit card debt. So avoid the credit cards.

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Avoid the student loans. Go to community college for a year or two. Go to a school you can afford. Scholarships and grants and working. You can do all the those things to avoid student loans. And a car loan. You don't need a nice brand new car in college. Drive the clunker. Do not take out a car loan.

>> Very smart. Next you say simple decisions are important decisions. What do you mean by that?

>> Well, things like is a meal plan cheaper or buying groceries. Even scheduling your classes. Don't waste your money. Only take classes you need to get the diploma.

>> And the books you buy. Overpriced. If you can get the digital version or used copy. Rachel, some great tips this morning. Thanks for joining us from Nashville.

THE PRESIDENT: Thank you. Everybody have a seat. Welcome to the White House. And I want to thank Andy for the terrific introduction. And this is commencement season, and it’s always a hopeful and exciting time, and I’ll bet we might have some folks who just graduated here today. Raise your hands. Let’s see -- yes, we’ve got a couple of folks who are feeling pretty good. (Laughter.)

Of course, once the glow wears off, this can be a stressful time for millions of students. And they’re asking themselves, how on Earth am I going to pay off all these student loans? And that’s what we’re here to talk about. And Andy I think gave a vivid example of what’s going through the minds of so many young people who have the drive and the energy and have succeeded in everything that they do but because of family circumstances have found themselves in a situation where they’ve got significant debt.

Now, we know, all of you know, that in a 21st century economy, a higher education is the single best investment that you can make in yourselves and your future, and we’ve got to make sure that investment pays off.

And here’s why: For 51 months in a row, our businesses have created new jobs -- 9.4 million new jobs in total. And over the last year, we’ve averaged around 200,000 new jobs every month. That’s the good news. But while those at the top are doing better than ever, average wages have barely budged. And there are too many Americans out there that are working harder and harder just to get by.

Everything I do is aimed towards reversing those trends that put a greater burden on the middle class and are diminishing the number of ladders to get into the middle class, because the central tenet of my presidency, partly because of the story of my life and Michelle’s life, is this is a country where opportunity should be available for anybody -- the idea that no matter who you are, what you look like, where you come from, how you were raised, who you love, if you’re willing to work hard, if you’re willing to live up to your responsibilities, you can make it here in America.

And in America, higher education opens the doors of opportunity for all. And it doesn’t have to be a four-year college education. We’ve got community colleges, we’ve got technical schools, but we know that some higher education, some additional skills is going to be your surest path to the middle class. The typical American with a bachelor’s degree or higher earns over $28,000 more per year than somebody with just a high school education -- 28 grand a year. And right now, the unemployment rate for workers with a bachelor’s degree is about half of what it is for folks with just a high school education.

So you know that this is a smart investment. Your parents know this is a smart investment. That’s why so many of them made such big sacrifices to make sure that you could get into college, and nagged you throughout your high school years. (Laughter.)

Here’s the problem: At a time when higher education has never been more important, it’s also never been more expensive. Over the last three decades, the average tuition at a public university has more than tripled. At the same time, the typical family’s income has gone up just 16 percent.

Michelle and I both went to college because of loans and grants and the work that we did. But I’ll be honest with you -- now, I’m old, I’ve got to admit -- (laughter) -- but when I got out of school, it took me about a year to pay off my entire undergraduate education. That was it. And I went to a private school; I didn’t even go to a public school. So as recently as the ‘70s, the ‘80s, when you made a commitment to college, you weren’t anticipating that you’d have this massive debt on the back end.

Now, when I went to law school it was a different story. But that made sense because the idea was if you got a professional degree like a law degree, you would probably be able to pay it off. And so I didn’t feel sorry for myself or any lawyers who took on law school debt.

But compare that experience just half a generation, a generation ago to what kids are going through now. These rising costs have left middle-class families feeling trapped. Let’s be honest: Families at the top, they can easily save more than enough money to pay for school out of pocket. Families at the bottom face a lot of obstacles, but they can turn to federal programs designed to help them handle costs. But you’ve got a lot of middle-class families who can’t build up enough savings, don’t qualify for support, feel like nobody is looking out for them. And as Andy just described vividly, heaven forbid that the equity in their home gets used up for some other family emergency, or, as we saw in 2008, suddenly home values sink, and then people feel like they’re left in the lurch.

So I’m only here because this country gave me a chance through education. We are here today because we believe that in America, no hardworking young person should be priced out of a higher education.

This country has always made a commitment to put a good education within the reach of young people willing to work for it. I mentioned my generation, but think about my grandfather’s generation. I just came back from Normandy, where we celebrated D-Day. When that generation of young people came back from World War II, at least the men, my grandfather was able to go to college on the GI Bill. And that helped build the greatest middle class the world has ever known.

Grants helped my mother raise two kids by herself while she got through school. And she didn’t have $75,000 worth of debt, and she was raising two kids at the same time. Neither Michelle or I came from a lot of money, but with hard work, and help from scholarships and student loans, we got to go to great schools. We did not have this kind of burden that we’re seeing, at least at the undergraduate stages. As I said, because of law school, we only finished paying off our own student loans just 10 years ago. So we know what many of you are going through or look forward -- or don’t look forward to. (Laughter.) And we were doing it at the same time -- we already had to start saving for Malia and Sasha’s education.

But this is why I feel so strongly about this. This is why I’m passionate about it. That’s why we took on a student loan system that basically gave away tens of billions of taxpayer dollars to big banks. We said, let’s cut out the middle man. Banks should be making a profit on what they do, but not off the backs of students. We reformed it; more money went directly to students. We expanded grants for low-income students through the Pell grant program. We created a new tuition tax credit for middle-class families. We offered millions of young people the chance to cap their student loan payments at 10 percent of their income -- that’s what Andy was referring to. Michelle right now is working with students to help them “Reach Higher,” and overcome the obstacles that stand between them and graduation. This is something we are deeply invested in.

But as long as college costs keep soaring, we can’t just keep throwing money at the problem. We’re going to have to initiate reforms from the colleges themselves. States have to invest more in higher education. Historically, the reason we had such a great public education system, public higher education system was states understood we will benefit if we invest in higher education. And somewhere along the line, they started thinking, we’ve got to invest more in prisons than we do in higher education. And part of the reason that tuition has been jacked up year after year after year is state legislators are not prioritizing this. They’re passing the costs onto taxpayers. It’s not sustainable.

So that’s why I laid out a plan to shake up our higher education system and encourage colleges to finally bring down college costs. And I proposed new rules to make sure for-profit colleges keep their promises and train students with the skills for today’s jobs without saddling them with debt. Too many of these for-profit colleges -- some do a fine job, but many of them recruit kids in, the kids don’t graduate, but they’re left with the debt. And if they do graduate, too often they don’t have the marketable skills they need to get the job that allows them to service the debt.

None of these fights have been easy. All of them have been worth it. You’ve got some outstanding members of Congress right here who have been fighting right alongside us to make sure that we are giving you a fair shake. And the good news is, more young people are earning college degrees than ever before. And that’s something we should be proud of, and that’s something we should celebrate.

But more of them are graduating with debt. Despite everything we’re doing, we’re still seeing too big a debt load on too many young people. A large majority of today’s college seniors have taken out loans to pay for school. The average borrower at a four-year college owes nearly $30,000 by graduation day. Americans now owe more on student loans than they do on credit cards. And the outrage here is that they’re just doing what they’ve been told they’re supposed to do. I can’t tell you how many letters I get from people who say I did everything I was supposed to and now I’m finding myself in a situation where I’ve got debts I can’t pay off, and I want to pay them off, and I’m working really hard, but I just can’t make ends meet.

If somebody plays by the rules, they shouldn’t be punished for it. A young woman named Ashley, in Santa Fe, wrote me a letter a few months ago. And Ashley wanted me to know that she’s young, she’s ambitious, she’s proud of the degree she earned. And she said, “I am the future” -- she put “am” in capital letters so that I’d know she means business. (Laughter.) And she told me that because of her student loan debt, she’s worried she’ll never be able to buy a car or a house. She wrote, “I’m not even 30, and I’ve given up on my future because I can’t afford to have one.” I wrote her back and said it’s a little early in your 20s to give up. (Laughter.) So I’m sure Ashley was trying to make a point, but it’s a point that all of us need to pay attention to. In America, no young person who works hard and plays by the rules should feel that way.

Now, I’ve made it clear that I want to work with Congress on this issue. Unfortunately, a generation of young people can’t afford to wait for Congress to get going. The members of Congress who are here are working very hard and putting forward legislation to try to make this stuff happen, but they have not gotten some of the support that they need. In this year of action, wherever I’ve seen ways I can act on my own to expand opportunity to more Americans, I have. And today, I’m going to take three actions to help more young people pay off their student loan debt.

Number one, I’m directing our Secretary of Education, Arne Duncan, to give more Americans who are already making their loan payments a chance to cap those payments at 10 percent of their income. We call it “Pay As You Earn.” We know it works, because we’ve already offered it to millions of young people. It’s saving folks like Andy hundreds of dollars potentially every month. It’s giving graduates the opportunity to pursue the dreams that inspired them to go to school in the first place, and that’s good for everybody. And we want more young people to start their own businesses. We want more young people becoming teachers and nurses and social workers. We want young people to be in a position to pursue their dreams. And we want more young people who act responsibly to be able to manage their debt over time. So we’re announcing steps that will open up “Pay As You Earn” to nearly 5 million more Americans. That’s the first action we’re taking today.

The second action is to renegotiate contracts with private companies like Sallie Mae that service our student loans. And we’re going to make it clear that these companies are in the business of helping students, not just collecting payments, and they owe young people the customer service, and support, and financial flexibility that they deserve. That’s number two.

Number three -- we’re doing more to help every borrower know all the options that are out there, so that they can pick the one that’s right for them. So we’re going to work with the teachers’ associations, and the nurses’ associations, with business groups; with the YMCA, and non-profits and companies like TurboTax and H&R Block. And tomorrow, I’m going to do a student loan Q&A with Tumblr to help spread the word -- you’re laughing because you think, what does he know about Tumblr? (Laughter.) But you will recall that I have two teenage daughters so that I am hip to all these things. (Laughter.) Plus I have all these twenty-somethings who are working for me all the time. (Laughter.)

But to give even more student borrowers the chance to save money requires action from Congress. I’m going to be signing this executive order. It’s going to make progress, but not enough. We need more. We’ve got to have Congress to make some progress. Now, the good news is, as I said, there are some folks in Congress who want to do it. There are folks here like Jim Clyburn, John Tierney, who are helping lead this fight in the House. We’ve got Elizabeth Warren, who’s leading this fight in the Senate. Elizabeth has written a bill that would let students refinance their loans at today’s lower interest rates, just like their parents can refinance a mortgage. It pays for itself by closing loopholes that allow some millionaires to pay a lower tax rate than middle-class families.

I don’t know, by the way, why folks aren’t more outraged about this. I’m going to take a pause out of my prepared text. You would think that if somebody like me has done really well in part because the country has invested in them, that they wouldn’t mind at least paying the same rate as a teacher or a nurse. There’s not a good economic argument for it, that they should pay a lower rate. It’s just clout, that’s all. So it’s bad enough that that’s already happening. It would be scandalous if we allowed those kinds of tax loopholes for the very, very fortunate to survive while students are having trouble just getting started in their lives.

So you’ve got a pretty straightforward bill here. And this week, Congress will vote on that bill. And I want Americans to pay attention to see where their lawmakers’ priorities lie here: lower tax bills for millionaires, or lower student loan bills for the middle class.

This should be a no-brainer. You’ve got a group of far-right Republicans in Congress who push this trickle-down economic plan, telling hard-working students and families, “You’re on your own.” Two years ago, Republicans in Congress nearly let student loan interest rates double for 7 million young people. Last year, they tried to strip protections from lower-income students. This year, House Republicans voted overwhelmingly to slash Pell grants and make it harder for thousands of families to afford college. If you’re a big oil company, they’ll go to bat for you. If you’re a student, good luck.

Some of these Republicans in Congress seem to believe that it’s just because -- that just because some of the young people behind me need some help, that they’re not trying hard enough. They don’t get it. Maybe they need to talk to Andy. These students worked hard to get where they are today.

Shanelle Roberson -- where is Shanelle? Shanelle is the first in her family to graduate from a four-year college. (Applause.) Shanelle is not asking for a handout, none of these folks are. They’re working hard. They’re working while they’re going to school. They’re doing exactly what we told them they should do. But they want a chance. If they do exactly what they’re told they should do, that they’re not suddenly loaded up where they’ve got so much debt that they can’t buy a house, they can’t think about starting a family, they can’t imagine starting a business on their own.

I’ve been in politics long enough to hear plenty of people, from both parties, pay lip service to the next generation, and then they abandon them when it counts. And we, the voters, let it happen. This is something that should be really straightforward, just like the minimum wage should be straightforward, just like equal pay for equal work should be straightforward. And one of the things I want all the voters out there to consider, particularly parents who are struggling trying to figure out how am I going to pay my kid’s college education, take a look and see who is that’s fighting for you and your kids, and who is it that’s not. Because if there are no consequences, then this kind of irresponsible behavior continues on the part of members of Congress.

So I ran for this office to help more young people go to college, graduate, and pay off their debt. And we’ve made some really good progress despite the best efforts of some in Congress to block that progress. Think about how much more we could do if they were not standing in the way.

This week, they have a chance to help millions of young people. I hope they do. You should let them know you are watching and paying attention to what they do. If they do not look out for you, and then throw up a whole bunch of arguments that are meant to obfuscate -- meaning confuse, rather than to clarify and illuminate -- (laughter) -- then you should call them to account. And in the meantime, I’m going to take these actions today on behalf of all these young people here, and every striving young American who shares my belief that this is a place where you can still make it if you try.

Thank you, everybody. God bless you. God bless America.

GWEN IFILL: Student debt in America has more than tripled in just the past decade, and experts say too much debt can put a crimp on graduates` futures. It`s an issue that Democrats, particularly the president, have targeted for new remedies. It was the focus of his latest executive action today.
It`s the season for pomp and circumstance, triumphant graduations, cap-tossing, and a reminder that, although college may be over, the bills are just now coming due.
The average student who graduated last year had nearly $30,000 in student loan debt. Today, in the White House East Room, President Obama signed an executive order that would allow borrowers who took out federal loans prior to 2007 to tie their repayments to their incomes.
BARACK OBAMA, President of the United States: Let`s be honest. Families at the top, they can easily save more than enough money to pay for school out of pocket.
Families at the bottom face a lot of obstacles, but they can turn to programs designed to help them handle costs, but you have got a lot of middle-class families who can`t build up enough savings, don`t qualify for support, feel like nobody is looking out for them.
GWEN IFILL: The program would expand on 2010 law that capped federal loan repayments at 10 percent of their monthly income, while allowing low- income borrowers to have their loans forgiven after 20 or 25 years of on- time payments.
The White House says up to five million former students would benefit, providing a boost to the overall economy. The president also cast his plan in political terms, challenging Republicans to support him.
BARACK OBAMA: If you`re a big oil company, they will go to bat for you. If you`re a student, good luck.
GWEN IFILL: Americans are now carrying student loan debt of over $1 trillion, $125 billion of it added just in the first three months of this year.
Some Republicans criticized the president`s plan today. Senator Lamar Alexander of Tennessee told The Wall Street Journal: "I still haven`t found the authority for the president to do this. And there`s very likely to be a cost in this and we need to know what it is."
So what, if anything, could this approach do to help ease the growing problem of student loan debt?
For that, we turn to Deanne Loonin, who leads the student borrower program at the National Consumer Law Center. And Richard Vedder, professor of economics at Ohio University and director of the Center for College Affordability and Productivity.
Professor Vedder, today, I was talking to a recent college graduate who says she owes $100,000 in school loans. She just graduated last year. How deep, how wide is this problem?
RICHARD VEDDER, Ohio University: Well, that`s a little atypical for an undergraduate to graduate with $100,000 in debt, but it is a significant problem when you have 40 million Americans having debt to the government, and this debt now is greater than the debt on car loans, on credit cards, home equity loans.
This is the largest form of debt in the United States, except for home mortgages. So it`s become a widespread issue, and it`s not surprising that it`s surfacing as a political issue in this election year.
GWEN IFILL: Deanne Loonin, does this solution that the president`s proposing that has been in place for some college graduates or for the last several years, is that shifting the burden from the student to the taxpayer?
DEANNE LOONIN, National Consumer Law Center: No, I wouldn`t look at it that way.
I think that it`s actually a very good investment in students, so that students are more likely to succeed, and when students after college are more likely to succeed, that benefits taxpayers, it benefits society, it benefits everyone.
GWEN IFILL: But you heard what Senator Alexander said about the cost and the White House said today, we`re still doing rule-making, we don`t know the costs yet.
But given what we have done -- what they have done so far, is there a way to put a price tag on something like this?
DEANNE LOONIN: Well, there may be some additional short-term costs and I think that we want to hear more about that.
But again I think that we need to look at the cost issue in a more comprehensive way. If these borrowers are more able to handle their debt burdens better, and they`re more likely to succeed, that`s an investment in students, an investment in student borrowers, and, frankly, instead of money going to the private contractors, private servicers to collect them from those borrowers if they`re so financially distressed that they can`t afford their payments.
GWEN IFILL: Professor Vedder, how much a bite would this approach take out of the problem?
RICHARD VEDDER: Well, I think this is not dealing with the real root cause of the problem.
The real root cause of the problem, the reason there`s so much student debt, over $1 trillion to begin with, is that tuition fees and college costs in general have been rising almost exponentially and at an ever faster rate of increase in the last several decades.
This is dealing with -- is not dealing with the problem in a fundamental sense. It`s a panacea that is addressing the short-run problems of people who are distressed. It`s not dealing with the long-term problem of how we get out of this mess which is still growing and will continue to grow. And this does nothing to stop that.
GWEN IFILL: Deanne Loonin, what about that? If the costs keep going up, what`s the point in just forgiving loans?
DEANNE LOONIN: Well, absolutely right that it`s not the entire solution. It`s a piece of the puzzle, but that doesn`t mean that we should not try to put that piece of the puzzle in.
Borrowers are suffering now. Students are having trouble with the debt-to-income ratios, with the draconian collection powers that the government has. We need some relief for borrowers now. And the president is taking this step to do it. But there is certainly more to be done, including more accountability from the schools themselves to help keep costs down.
GWEN IFILL: Well, let`s talk long-term solutions, Richard Vedder. what do you suggest?
RICHARD VEDDER: Well, I would agree with the last comment that she made, that Deanne Loonin made, that maybe it`s time for the colleges to have some skin in the game, so when they have high default rates among their graduates, for example, the colleges themselves perhaps should help pick up some of the costs.
Frankly, I think we`re having a problem where in some ways we`re not underinvested in higher education, but overinvested. We have lots of students graduating from college today that are underemployed. They`re taking jobs paying relatively low wages, and we have a serious problem there.
None of this is dealing with any of that. And so I have some concerns that we are dealing with the symptoms, but not really with the real problem or the real disease, as it were, and we need to address that. And part of the problem is the student loan program itself.
The student loan program enables colleges to raise their tuition fees. And it almost invites them to raise tuition fees, creating an academic arms race, which I think has become very costly, very inefficient and very harmful, particularly to lower-income people.
GWEN IFILL: Well, Deanne, that`s a lot of to bit off, but we were just talking in the Veterans Affairs segment about reverse incentives. I wonder if that`s what we`re seeing here, that after a while, you keep saying to people, as long as you -- we will forgive your loans, you won`t have to pay more than a percentage of your income to repay them, and then you borrow more and more and more.
Is that the larger long-term problem?
DEANNE LOONIN: Well, we work with borrowers here in Boston, in Massachusetts, and we don`t see that problem.
That may be a problem in some ways. But these are people, for the most part, individuals who are trying to better their lives, trying to borrow -- trying to better their family`s lives. And we want to make sure that there is access to that opportunity for as many people as possible.
Yes, there`s responsibility on the part of the borrowers, but right now basically all of the risk is falling on the borrowers, so the idea here is more risk-sharing. Let`s get the institutions more accountable. Let`s get the private contractors that are profiting from the system more accountable, and look at the costs in that way, more holistically.
And if you look at it that way, as an investment in our future, then I think it`s really a very good investment.
GWEN IFILL: So you don`t think the investment, as Professor Vedder is suggesting, is misplaced?
DEANNE LOONIN: No, I don`t.
I do think, again, that there`s a lot of schools that have not -- there`s not been enough oversight, they don`t have good outcome measures, they have too many students who are defaulting or delinquent on their loans. So let`s make sure that those schools are accountable. And if they have some other standards where we want to make sure that they`re admitting students who are likely to succeed, and there are ways to deal with that problem front on, but we don`t want to have that impede opportunity for the most vulnerable borrowers and, frankly, for borrowers and their families in general.
GWEN IFILL: Deanne Loonin of the National Consumer Law Center, and Professor Richard Vedder of Ohio University, thank you both very much.
DEANNE LOONIN: Thank you.
RICHARD VEDDER: Thank you.

DIANE SAWYER (ABC NEWS)
(Voiceover) Today, we learned that tuition and fees at public colleges have just this year increased more than 8%, just this year. And that's twice the rate of inflation. At private colleges, 4%. And so many of you have been writing us about the mountain of debt that you have acquired, just to get a college education. So steep, you've said you can't breathe. And one mother pointed out it will take her until 2031 to pay off her college loan, just as her toddler starts college in 2032.
DIANE SAWYER (ABC NEWS)
(Off-camera) And tonight, ABC's David Muir tells us about a new plan announced by the President and whether it will help.
DAVID MUIR (ABC NEWS)
(Voiceover) Drowning in debt and so many middle class parents once again providing that roof over their heads.
GRAPHICS: AMOUNT BORROWED
DAVID MUIR (ABC NEWS)
(Voiceover) New numbers tonight show that in the last decade alone, with skyrocketing tuition costs, the amount of undergraduate borrowing has increased by 57%.
GRAPHICS: OWE AVERAGE
DAVID MUIR (ABC NEWS)
(Voiceover) Two-thirds of graduates now owe an average of $28,000 when they leave. And many owe far more.
GRAPHICS: OBAMA PLAN
DAVID MUIR (ABC NEWS)
(Voiceover) Today, President Obama signaled he knows that. Now fast-tracking a move by Congress to allow borrowers to adjust their monthly payments based on what they earn. Paying no more than 10% of their discretionary income, that's the money left over after shelter and food, on those college loans. The President speaking of his and the First Lady's own college debt, paid off just a few years before he was president.
PRESIDENT BARACK OBAMA (UNITED STATES)
So by the time we both graduated from law school, we had between us about $120,000 worth of debt. You know, we combined and got poorer together.
GRAPHICS: INCOME
DAVID MUIR (ABC NEWS)
(Voiceover) Say a teacher making $30,000 a year who owes $60,000 in federal loans. His or her monthly payment would be reduced by more than $500, from $690 a month to $113 a month. But what about some of the students who reached out to us with those three words? One saying "high monthly payment." The other, "going nowhere fast."
ASHLEY MEYER (COLLEGE GRADUATE)
This is my room.
DAVID MUIR (ABC NEWS)
(Voiceover) Ashley Meyer in Dallas, back in her childhood bed, one of the 6 million who have moved back home. She has four student loans and owes nearly $70,000. The President's new numbers don't help her. They only apply to borrowers starting next year.
GRAPHICS: LOANS
DAVID MUIR (ABC NEWS)
(Voiceover) And there's something else. Of Ashley's four student loans, three are private loans, also very common. And the President's plan does nothing to rein in the rates on those loans.
LAUREN ASHER (PRESIDENT OF PROJECT ON STUDENT DEBT)
They're under regulated and very risky, particularly the variable rate loans which like sub-prime mortgages can spike in cost at a moment's notice.
DAVID MUIR (ABC NEWS)
(Voiceover) And millions of students in this country hold those private leans, too. This next generation just starting out, deep in debt and with few jobs available to pay for that education.
RON BROWNSTEIN (EDITORIAL DIRECTOR OF NATIONAL JOURNAL)
As this downturn continues, you are seeing the potential of an economically lost generation. Young people who are taking years to get on the escalator to move into stable employment.
DAVID MUIR (ABC NEWS)
(Off-camera) Now, those private college loans, so many experts say, are the next shoe to drop for parents and students who took them out to get through college. You heard them compared to sub-prime mortgages there, only they're worse. You can't walk away from them ever. And Diane, you heard the President also talking about consolidating federal loans to bring the interest rate down. We learned today that you can do that already and many students and parents out there don't know they can do that with their children. So, we put tips online to get them going right away.
DIANE SAWYER (ABC NEWS)
(Off-camera) Those are staggering things people are writing us and writing you in particular, David. Thank you.

Rising college tuition and soaring student loan debt have focused new attention on a small group of schools that have been around for more than a century. They are called work colleges, and they require the student to have an oncampus job. They had less than half of the debt of students who graduated from private or public colleges. Many work college students say the schools offer experiences other schools can't match.

>> Reporter: These blacksmiths are actually college students in ashville, North Carolina.

>> It's going to go across the formal garden. It is going to be really sick.

>> Reporter: They are fashioning

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metal goods for sale.

>> What is this?

>> These are nettles they grow next to our herb garden.

>> Reporter: This is how Warren Wilson integrates work with learning, and makes the price tag more affordable. It's one of seven federally recognized work colleges. Students must work 15 hours a week, or 3 hours Aday for the entire academic year. Their annual compensation, 3,000480 dollars. While students pay federal, and state taxes on their earnings, they never really get a paycheck.

>> We don't see the money at all.

>> What!

>> Yeah, nothing.

>> The limit is 20 hours so they have time to study.

>>

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This is the student work force here. Every resident and most of the day students that are working are reflected here.

>> Those 110 crews are made up of Warren Wilson's 924 students who are doing everything from fixing issues.

>> Students working in wellness areas. That includes working with athletes working on sprains, and aches and pains. They do massages as well.

>> Reporter: Unlike traditional work study, these students are locked into their work agreements. And if they decide I don't want to work --

>> That's not a decision you can make here.

>> Reporter: If you don't work at these schools, you don't graduate. Warren Wilson offers assistance to students beyond their work agreements, but many also take on loans. Here students have almost no out of pocket expenses because the

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schools have large endowments and award everyone generous scholarships. That's also the reason experts say this education model isn't for every school.

>> So it's probably not scaleable in that way. However, I think there are lots of ways that other institutions could mimic some of the good things that go on at work affordable.

>> Reporter: But it would require schools spend money and create jobs for students even when it doesn't need the labor.

>> We don't have the flexibility from a fpsal standpoint, to manage expenses that another college has, because we have a paint crew. We have to have painting for them. We have to spending money on paints and brushes.

>> Reporter: Yet that commitment to work is why many students enroll here. This biochemistry major is part of the class of 2014.

>> I grew up here in so many ways. My life has completely changed since I have been here.

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I changed what I want to do for the rest of my life, where I find happiness.

>> Reporter: She says her on-campus job taught her the value of work, and instilled the opinions of following through on a financial commitment.

>> Ifill: Now, we continue this week's series: "Rethinking college." As states cut funding for public institutions, students are taking on bigger debt burdens to pay for their education. More than 70% of last year's college graduates had student loans, averaging almost $30,000 each. Hari sreenivasan has our report.

>> Sreenivasan: It was a great day for Ann Degarmo, who joined 6,400 students for graduation at the university of Wisconsin in Madison last may. The milestone marked the beginning of her life after college.

>> Oh my god, oh my god, it's happening, it's happening.

>> Sreenivasan: It also marked the beginning of payments on $58,000 of student loans. The heavy debt load carried by students like Ann Degarmo has sparked a national dialogue among policy makers. And it's easy to see why. Seven of ten graduating students left college last year in debt. The average debt load is $26,000. One in ten owes more than $40,000. Behind home mortgages, student loans are the second largest source of personal debt, more than credit cards, more than auto loans. The total bill due for students in America tops one trillion dollars. Throughout college, Ann Degarmo held a job. Even so, she took on private and federal loans to make ends meet.

>> I couldn't work enough hours with going to school full time and be able to afford to pay my rent in full.

>> Sreenivasan: Now, the reality of paying down debt for years has her worried.

>> It's hard, it's really hard, and it's really scary.

>> Sreenivasan: Why are you scared?

>> This education is going to cost me, you know, a car, a house potentially. $58,000 isn't change, it's definitely not pocket change, it's going to cost me the ability to start a family when I want to, potentially, depending how fast I can pay it back.

>> Sreenivasan: Degarmo brought her concerns to a town hall meeting in Madison. The gathering was organized by an advocacy group called one Wisconsin now. Scott Ross is the group's executive director.

>> We've traveled around Wisconsin, and we've talked to people of all ages about their student loan debt, and it's soul crushing for them, they're saying all I want to do is go to college, and now I've got a 25 year obligation

>> Sreenivasan: Student Saul newton, from northern Wisconsin, described the difficult time he had affording college.

>> Over the course of two years I saw my tuition skyrocket, I was working multiple jobs trying to keep my head above water, but I was drowning.

>> Sreenivasan: Newton says he joined the army to avoid serious debt, and was quickly deployed to Afghanistan during the military surge in 2007.

>> I'm grateful that now I qualify for the gi bill and I can go to college, and I have that opportunity, but I think it's very indicative of the types of choices that students have to make now, that I had to make the choice to go to war in order to afford a college education.

>> Sreenivasan: Congressman mark Pocan, a democrat who represents Wisconsin's second district, believes student debt is creating a drag on the country's economic recovery.

>> Coming out of school you're paying a lot of loans, if you're not buying a new car, you're not stimulating the economy. Instead of buying a home, you might rent. So some of the things that really help us at the most base level of trying to bring the economy up and get it going while we're still recovering from the recession is held back even further by people having high levels of debt.

>> Sreenivasan: So what's causing the problem?

>> With the crash of the entire economy just a few years ago, we really haven't seen states put money back into the public institutions, so while you still have the cost of education, if it's not being covered as it traditionally was, often by the states, it's gone and got passed on to students over and over.

>> Sreenivasan: In fact, tuition at public institutions has risen more than 50% over the last decade. It's a significant number given that 70% of undergraduates in the United States attend public institutions. Recently Wisconsin's governor Scott walker weighed in on the rising costs of higher education. In announcing his re-election campaign, walker promised to extend a two-year tuition freeze at the university of Wisconsin.

>> More students and more working families can afford to get a great education at one of our many U.W. Campuses all across the state, how about that?

>> Sreenivasan: Ross welcomes any attention to high college costs and heavy debt as an election year issue.

>> There are forty million student loan debtors out there, they need to get organized, you know. If you think about the amount of time and discussion and debate, and fear that elected officials have to say doing something with social security, well there's sixty five million people who get social security, now we've got forty million people with student loan debt, that's forty million people who, if they get involved in the public policy debate, if they get organized, they're going to be a voting block that people will fear to not act.

>> Sreenivasan: This spring, a flurry of bills were introduced by democrats in Wisconsin and Washington to lower the existing debt burden, so far with little success. One bill, proposed by congressman Pocan would allow for refinancing of student loans at lower interest rates.

>> In anything else in the world, if you're a small business, if you own a home, you have a car, you're a state or local unit of government, everyone's refinancing loans because we're at historic lows, and yet with student loans it's really not allowed.

>> Sreenivasan: What about the folks that say, well, where's personal responsibility, this is the cost of going to school?

>> I think the difference is, you know, when I went to school, I could pay it off in five years. Now, these are people leaving with $26,000, $58,000, and not doing it in five years, but doing it in ten, 20 years.

>> It's difficult to kind of understand as an 18-or-19-year- old that, you know, this education that you want, and you're expected to get, at this point in order to get a good job, is going to cost so much money. It is still true that to get the "Good job," a college degree is worth the money.

>> Sreenivasan: According to the federal reserve, a bachelor's degree provides a 75% wage advantage over a high school diploma.


Despite the high cost, some studies say the rate of borrowing has remained steady, and the vast majority of graduates are pleased with their education.

>> The college experience is great, I've had a lovely, a wonderful time in college, but it's challenging, and it's sometimes very exhausting, but I think in the long run it's worth it, it's worth it.

>> Sreenivasan: Degarmo is likely to get some relief on her federal student loans from the president's executive order this summer which caps payments to 10% of monthly earnings.

>> Ifill: Tomorrow, hari looks at the impact that massive open online courses, called moocs, are having on traditional teaching at the university level. And online, you can read about how New Hampshire is experimenting with a tuition freeze at its public colleges to keep it's students in-state. Plus, join us all week for newshour Twitter chats, tomorrow's topic: What gives a college degree its value?