debt problem. NewsHour economics correspondent Paul Solman tallies up the larger toll it's

taking and what it means for new graduates. It's part of his ongoing reporting Making

Sense of financial news. PAUL SOLMAN: America's age-old academic rite of spring: commencement.

Degree in hand, graduates are about to begin real life and the world of work. What's different

these days is the cost of that degree, and the extent to which it's been financed with

debt. Americans owe $700 billion in car loans, more than $800 billion on our credit cards.

But student debt now tops $1 trillion, and it's not just weighing down the 37 million

former students who owe it, but the whole economy. Here's economist Paul Krugman in

a recent public interview. PAUL KRUGMAN, columnist, The New York Times: The preponderance of the

evidence is that the biggest single factor keeping us where we are, keeping us in this

depression is the overhang of debt. PAUL SOLMAN: And student debt, we asked him a few days

later. PAUL KRUGMAN: Household debt is the big ball and chain on this economy, and student

debt is a big part of it. PAUL SOLMAN: But how, you might wonder, could people like Ricky

Evans, age 32, who works in finance in the D.C. area and earns upwards of $70,000 a year,

still have student loans of more than $80,000? MAN: Honestly, back then, I barely understood

interest rates. PAUL SOLMAN: What about 27-year-old teacher Beth Hansen? In addition to working

full-time at a Maryland middle school, she now works two other part-time jobs, running

an after-school book club, singing in a church choir, and yet earned only $46,000 total last

year, while still owing more than $60,000. MAN: Looking for employment? BETH HANSEN,

middle school teacher: Yes. PAUL SOLMAN: She's now looking for a waitressing job to make

ends meet, working tables after teaching seventh and eighth graders all day. Did she understand

the load she was taking on? BETH HANSEN: Think, how old was I when I signed my first promissory

note? Seventeen. Am I really going to read said promissory note from beginning to end?

PAUL SOLMAN: Or understand it. BETH HANSEN: Or understand it even if I had read it. MARK

KANTROWITZ, FinAid.org: Most students will sign whatever piece of paper is put in front

of them, and they won't pay attention to it. PAUL SOLMAN: Mark Kantrowitz is a financial

aid expert. MARK KANTROWITZ: There's no one out there telling them, don't borrow too much.

PAUL SOLMAN: Daniel Habtemariam, 28, a medical statistician who had attended the Krugman

event, says student debt is depressing pretty much everyone he knows. DANIEL HABTEMARIAM,

medical statistician: I know for myself and as well as for many of my peers, we have put

off major life decisions, put off having children, putting off buying a house. My peers don't

have enough revenue, they don't have enough income, they don't have enough security and

enough sort of confidence in their future income. PAUL SOLMAN: And the overhang of debt

is restraining them? DANIEL HABTEMARIAM: It's a terrible burden, yes. PAUL SOLMAN: Beth

Hansen is typical. BETH HANSEN: I live in a one-bedroom apartment, and it's the cheapest

one I can find, and it's still 35 percent of my monthly income. That also makes it so

much more difficult to pay off my student loans. And thinking about my life with my

future with my fiance, are we going to be able to buy a house? No, because I have no

money in the bank. There's no money for a down payment. There's no collateral. PAUL

SOLMAN: The standard loan contract allows anyone who cannot pay, like Hansen, to put

off payment for years. But the amount owed rises in the meantime, as the deferred interest

is added to the total bill. Meanwhile, since the crash, many public employees have seen

their earnings decrease. BETH HANSEN: I have actually been making less each year because

they furloughed us one year. And then, this year, they increased the amount that I had

to pay into my retirement. So I have gotten a 2 percent pay decrease. And I don't know

what they're going to do next year, but there's certainly been no cost of living increase

in four years. PAUL SOLMAN: Four years after graduating, Hansen has just started making

loan payments, $468 a month. To cover it, she's interviewing for that waitressing job.

Will she ever pay off her loans? BETH HANSEN: I may die first, in which case, they would

need a copy of my death certificate to finally cancel my loan. JUDITH SCOTT-CLAYTON, economist:

College is a very good investment. PAUL SOLMAN: Economist Judith Scott-Clayton studies higher

ed. JUDITH SCOTT-CLAYTON: Your level of education is the biggest single predictor of your lifetime

earnings that you can control, that you can do something about. And so it makes a lot

of sense to borrow, to finance this investment, which is going to pay off over the whole,

you know, 30 or 40 years that you're working. PAUL SOLMAN: But tell that to recently minted

B.A.s in the job market of the past few years, whose reality has clashed with the pretty

picture painted during orientation week. BETH HANSEN: They tell you, oh, you have made such

a good decision by joining our family. This is going to pay off so well in your future,

and our graduates have received this and this award and that award, and they're prestigiously

employed at, you know, X and such. And so, you think that that's clearly what's going

to happen for you as well. PAUL SOLMAN: So students borrowed money from the government

or private lenders, each with different terms, interest rates and payback options. The students

tended to ignore the total tab, or even what's called the opportunity cost, the income they

might have earned if they hadn't gone to school. Now the next generation sees what happened,

and may become wary. But a frightened overreaction is also a risk, says economist Judith Scott-Clayton.

JUDITH SCOTT-CLAYTON: The risk is that if they decide not to go because they're afraid

of taking out debt, they may actually end up in a worse situation than had they decided

to go. PAUL SOLMAN: Now, one reason student debt has surged past a $1 trillion, 80 percent

of it owed to Uncle Sam, is because college has become increasingly expensive. But the

Cato Institute's Neal McCluskey argues that's because of student debt financed by government

loans. NEAL MCCLUSKEY, Cato Institute: The massive inflation we see in tuition, in college

prices, have gone up faster than health care, faster than almost any other major industry.

Well, that's a product in large part of federal student aid. And, again, that's the -- if

you give someone $100, you tell them they have to use it for college, and colleges know

they have it, of course they're going to raise their prices. PAUL SOLMAN: The government

begs to differ. MARTHA KANTER, U.S. Undersecretary of Education: Federal subsidies are not the

reason that college costs have escalated. PAUL SOLMAN: If government aid drives tuition,

says Undersecretary of Education Martha Kanter, how come prices are rising fastest at state

schools? MARTHA KANTER: Just last year, if you look at states, over 80 percent of states

have dramatically cut American higher education. Institutions of higher education raise tuition

when that happens. PAUL SOLMAN: But no matter who's responsible, soaring tuitions mean soaring

debts mean more defaults. And that's very bad news, says Mark Kantrowitz. MARK KANTROWITZ:

When someone defaults on a student loan, it's like a trip through hell, I mean, all the

negative things that occur, the garnishments, the interception of your income tax returns.

Your credit is ruined. PAUL SOLMAN: Moreover, unlike credit card and other borrowing, Congress

has legislated that you can't even escape student debt through bankruptcy. Robert Applebaum

is an advocate for student loan reform. ROBERT APPLEBAUM, ForgiveStudentLoanDebt.com: Not

only can you not go to Chapter 7 bankruptcy, which is a discharge of your debt. You can't

go to Chapter 13 bankruptcy, which is just a restructuring of your debt, so essentially

refinancing. You go into massive amounts of debt just to get an education that you need

as a prerequisite to get a job, and then spend the rest your life paying off that educational

debt. There's got to be a better way. PAUL SOLMAN: The policy question then that hangs

over the trillion-dollar student debt overhang: Is there a better way, and, if so, what is

it? JEFFREY BROWN: Paul's next report looks at the move to forgive student loan debt.

Online, you can figure out whether it's still possible to work your way through school.

You can use our college cost and income calculator. urn:schemas-microsoft-com:office:smarttags

State urn:schemas-microsoft-com:office:smarttags country-region urn:schemas-microsoft-com:office:smarttags

place JUDY WOODRUFF: Now: the first of two reports on the ever-growing student loan debt

problem Normal Microsoft Office Word JUDY WOODRUFF: Now: the first of two reports on

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