Postponing the American Dream

Achieving the American Dream has traditionally been a recipe that included hard work and ingenuity.

Generations of hard-working Americans have been able to graduate from college, build wealth, purchase a home, and leave a legacy for their children.

Is this ideal of the American Dream now a nostalgic memory of the past?

Becoming a Nightmare

Many college students are burdened with a heavy debt load to finance this American Dream, and this debt load has a disparate impact on minority families.

Consider these facts:

• Black students on U.S. college campuses carry $7.5 billion in student loan and credit card debt
• This represents 16% of the nation’s total undergraduate debt
• Yet these same black students comprise only 12% of the nation’s undergraduate population

Long Term Impact

The new college graduate is now faced with burdensome student debt payments. In 2004, the average young adult spent 25% of their income on debt payments. Among those with household income under $50,000, nearly 1 in 5 were classified in debt hardship, paying over 40% of their income towards debt repayment. These monthly payments are funds that could otherwise be directed towards homeownership, wealth building or saving for retirement.

The Bureau of Labor Statistics estimates that “Jobs requiring higher education will grow by 22% between 2002 and 2012, the fastest percentage growth in new jobs (in America) and nearly double the rate of non-college jobs”

Because the amount of grant funds available to college students has been steadily decreasing , more and more college students are required to take on increasingly high amounts of student loans to finance a college education.

Policy Recommendations

• Increase funding for federal student grants, especially the funds available to students receiving Pell grants (typically low-income households).
• Adjust the grant amounts awarded annually to keep up with the increasing costs of education.
• Institute a new interest-free federal loan program to match the amount of funds awarded to Pell grant recipients.
• Mandate colleges receiving federal funds to require all students take a course in personal finance.
• Reinstate the seven-year period after which student loans may be discharged in Bankruptcy.
• Reform excessive student loan debt collection practices.
• Prohibit mandatory arbitration clauses in all contracts that extend credit to persons under the age of 21.
• Require a parent or guardian cosigner for all credit card contracts signed by persons under the age of 21.
• Prohibit companies from marketing credit card products on college campuses.
• Eliminate abusive credit card practices such as doublecycle billing, universal default, and excessive late fees and over the limit fees.