Chase Cryn Johannsen: Multigenerational debtors

In 2010, I wrote an essay, "The New Indentured Educated Class," for The New England Journal of Higher Education. This piece was pivotal in raising public awareness about a new group of Americans, an enormous group of us — educated and deeply in debt. At that point, few were talking about the student loan debt crisis, aside from me and a couple of others.

However, things have changed—politicians are not only openly acknowledging the crisis, but talking about it as a real issue in the 2016 presidential election. Newspapers publish articles on the topic daily. That's because outstanding student-loan debt is now a whopping $1.3 trillion, and over 43 million Americans carry that debt burden. I argue that almost every American is affected by this crisis. In the very least, it affects 1 in 4 Americans, and in ways that make life quite difficult, both financially and emotionally.

I often refer to just the borrowers with (or without) the degrees, but what about another set of borrowers who are part of the indentured educated class as well? I am referring to the parents of current borrowers, and for that matter, even the parents of future borrowers. Both groups—those who are parents of current borrowers and those who will be parents of future borrowers—face different dilemmas.

For the moment, let's focus on the parents of current borrowers. More specifically, I want to discuss the parents who took out loans to help their children attend school. I think about them quite often, as they are an understudied group of debtors. Moreover, a recent reader who commented on my previous NEJHE article, made me think even more about them, when she wrote the following:

"Please also address the issue of parent loans. Many parents took out student loans for our children's college expenses so our children would not be saddled by overwhelming debt. As a consequence, we find ourselves near retirement age, yet unable to retire because we are paying off six figure student loans for 25 years. Why not forgive the interest on student loans as a first step? Why should the government be profiting from its citizens?''

In fact, I want her and other parents, who have taken out loans for their children, to be aware that I do discuss the issue of parents as debtors in my forthcoming book (to be published in May 2016). It seems she is referring to Plus Loans. These are federal loans, through the Direct Loan program, that are available to eligible graduate students or parents with children who are undergraduates. Since these loans are part of the Direct Loan program, the U.S. Department of Education is the lender.

The current interest rate on these loans is 6.84 percent. (It's also worth noting that in the event that the borrower dies, these loans can become a tax liability for those who took out Plus Loans, as I wrote about in a relation to a specific death of a young man, and the National Consumer Law Center recently noted how they are an unfair burden in cases of borrowers with extreme disabilities.)

To credit President Obama, in his new as well as final budget plan, he proposes to "eliminate the taxation on all loans forgiven or canceled due to a Department of Education program, including disability and death discharges," the National Consumer Law Center announced Feb. 10, 2016. While this news is positive, it is unlikely that members of Congress will agree to eliminate taxation on these loans due to disability or death.

Many of the parents who have borrowed money on their children's behalf, such as this reader, are now nearing retirement age. But they find themselves in a difficult position, as they are unable to retire due to the loans they took out for their children's schooling. I think that this raises a lot of questions that only those in the Department of Education can answer. For starters, has the department considered steps, such as forgiving the interest on these loans in order to aid borrowers who find themselves unable to retire? In addition, how are these specific loans affecting the overall economy?

The last question is an important one. We have ample evidence that young graduates who are freshly out of college and heavily indebted are hurting the overall economy. These debtors are unable to buy homes, cars, and other major items that help spur our consumer-driven economy. Moreover, these educated debtors are putting off having families. The economic ramifications have been acknowledged by notable economists such as Joseph Stigtlitz and Paul Krugman.

But now you throw in the parents of these debtors. Many of them are debtors too. The complexity to the crisis is now multi-generational, something that certainly indicates a negative outcome for economic growth, especially as it relates to a middle-class America that is already on the brink of extinction.

So, what is to be done? That's the pressing question, and I leave it to the policymakers to provide us with some concrete answers.

Chase Cryn Johannsen is a freelance writer and founder and executive director of the nonprofit All Education Matters, which advocates for student-loan debtors. This originated in the Web site of the New England Journal of Higher Education, part of the New England Board of Higher Education (nebhe.org).