$1 trillion student loan debt widens U.S. wealth gap

There are roughly 37 million graduates in the U.S. saddled with $1 trillion in student debt who may never catch up with wealthy peers who began life after college free from the burden.
By CAROLYN THOMPSON, Associated Press Published: March 30, 2014
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Every month that Gregory Zbylut pays $1,300 toward his law school loans is another month of not qualifying for a decent mortgage.

Every payment toward their student loans is $900 Dr. Nida Degesys and her husband aren’t putting in their retirement savings account.

They believe they’ll eventually climb from debt and begin using their earnings to build assets rather than fill holes. But, like the roughly 37 million others in the U.S. saddled with $1 trillion in student debt, they may never catch up with wealthy peers who began life after college free from the burden.

The disparity, experts say, is contributing to the widening of the gap between rich and everyone else in the country.

“If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money,” said William Elliott III, director of the Assets and Education Initiative at the University of Kansas. “But that money will actually mean less to you in the sense of accumulating assets in the long term.”

Graduates who can immediately begin building equity in housing or stocks and bonds get more time to see their investments grow, while indebted graduates spend years paying principal and interest on loans. The standard student loan repayment schedule is 10 years but can be much longer.

About 40 percent of households led by someone 35 or younger have student loan debt, a 2012 Pew Research Center analysis of government data found.

Allen Aston is one of the lucky ones, having landed a full academic and financial-need scholarship at Ohio State University. The 22-year-old software engineer from Columbus estimates it let him avoid about $100,000 in debt.

Without loans to repay, Aston is already contributing 6 percent of his salary to a retirement fund that is matched in part by his employer and doesn’t have the same financial concerns his friends do.

“I’m making the same money as them, but they have student loans they’re paying back that I don’t. So, it definitely seems noticeable,” he said.

At the other end of the spectrum is Zbylut, 48, an accountant-turned-attorney in Glendale, Calif. He’s been chipping away at nearly $160,000 in student debt since graduating in 2005 from law school at Loyola University in Chicago.

“I’m sitting here in traffic. I’ve got a Mercedes behind me and an Audi in front of me and I’m thinking, ‘What did they do that I didn’t do?’” Zbylut said by cellphone from his Chevrolet. He’s been turned down twice for the type of mortgage he needs to buy a home big enough for himself, the fiancee he would have married already if not for his debts, and her 10-year-old son.

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At a glance

Legislators discuss loans

President Barack Obama and lawmakers in Congress are debating how to address the issue of rising student loan debt, something experts say is contributing to the widening between the rich and everyone else. Some of the proposals:

•Obama has proposed extending the “pay-as-you-earn” repayment plan to all student borrowers. The program limits student loan payments based on income but is currently only available to borrowers who took out loans after October 2007.

•Sen. Elizabeth Warren, D-Mass., has proposed allowing people with high-interest student loans to refinance at today’s 3.86 percent rate and would pay for it by raising taxes on the wealthiest Americans.

•Sen. Kirsten Gillibrand, D-N.Y., introduced the Federal Student Loan Refinancing Act in May to allow borrowers that received loans under the Direct Loan or Federal Family Education Loan program after July 1, 2006, to consolidate them into one with an interest rate of 4 percent or less. Instead of paying more than $47,600 over the life of a 20-year, $26,000 loan, the borrower would pay $37,800.

•Rep. Frederica Wilson, D-Fla., introduced the Student Loan Borrowers’ Bill of Rights Act, which would remove educational loans from the list of debts that can’t be discharged in bankruptcy.

•The Student Right to Know Before You Go Act of 2013, require colleges to offer students cost-benefit analyses of how much they can expect to earn in a field versus how much they will owe.

•Sen. Marco Rubio, R-Fla., has called for “student investment plans.” Private investment firms would cover tuition costs that could be repaid as a fixed percentage of a graduate’s income for a set number of years.

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