After an announcement today there can be no confusion that the Consumer Financial Protection Bureau takes the dangers of looming consumer debt seriously. I am encouraged by the focused effort by the CFPB to help more students to have their student loans forgiven after ten years.
Director Rich Cordray gave a presentation in which he said, "Student loan debt is one of the most significant burdens facing our young people, and it certainly hits close to home for a growing number of Americans."
He went on to say the domino effect of student loan debt is real, and it is spreading. It is hard to erase this debt quickly -- paying it back may take many long years and prevent people from achieving other financial milestones.
Tuition costs have risen rapidly. Student loan debt has risen even faster, and default rates have increased in tandem. Graduates are facing a job market that has not fully recovered from the recession. It is clear that a weak labor market and rising student debt are putting the squeeze on young people. The Bureau estimates that more than 7 million Americans are in default on over $100 billion in student loan balances. For those who default early in their lives, the hit to their credit report makes it harder to pass background checks to get a job, let alone to buy a home.
At the same time, household formation is a key driver of economic growth. Yet young people today are not forming new households at the same rate they once did. Many live with their parents or share space longer with their peers. The homeownership rate for young people peaked before the financial crisis and by the first quarter of this year was down more than 15 percent. This is very troubling because most first-time homeowners are young people who drive the market for home purchases.
These spillover effects are not limited to the housing sector. Student debt burdens can get in the way of young people buying a car, starting a small business or saving for retirement. The CFPB is deeply concerned about how debt influences career choices by acting as a barrier to public service for a rising share of student loan borrowers. This may cause shortfalls in key roles such as teachers, healthcare workers, public safety personnel and other public service professions. In underserved rural and urban communities, shortages in critical skills hamper the local workforces. By some estimates, the country will need over 400,000 new teachers, 150,000 new social workers and 1,000,000 new nurses by 2020 -- a daunting task even under the best of circumstances.
Ensuring that the next generation of African American college graduates is in position to help address these shortages is a big piece of the puzzle. In this country, many people of color work in the public sector as teachers, social workers, first responders, healthcare providers and other critical areas of responsibility that improve our overall quality of life.
But African American college graduates are also more likely to carry above-average levels of student debt. More than four in five have to borrow to pay for college, taking on nearly 15 percent more debt than their peers. So rising levels of student debt may hit communities of color the hardest, keeping some of our best and brightest young people from giving back to society and denying our country the benefits of their public service. -- Source
With the cooperation of both the Peace Corps and Americorps, these two groups will work closely with the CFPB to help educate participants about how their time and experience with those groups can help lead to or count towards the forgiveness of their student loans under the Public Service Loan Forgiveness program.
For those entering some form of public service, as defined here, or facing a mountain of student loan debt after school and have been smart enough to avoid private student loans, the Public Service Loan Forgiveness program from the U.S. government has the power to allow student loan payments to be as low as zero dollars per month and to be completely forgiven after 120 zero dollar payments.