Experts Say Student Loan Debt Contributing to Widening U.S. Wealth Gap


The roughly 37 million Americanssaddled with $1 trillion in student loan debt may never catch up with wealthypeers who began life after college free from the burden. Experts say thatdisparity is contributing to the widening of the U.S. wealth gap.

University of Kansas researcherWilliam Elliott III says that the median 2009 net worth for a household withoutstudent debt was nearly three times the worth in a household with such debt.

He says that debt-free graduates canbegin building equity in housing or stocks and bonds and get more time to seetheir investments grow, while indebted graduates spend years paying principaland interest.

A 2012 Pew Research Center analysisfound that about 40 percent of households led by someone 35 or younger havestudent debt.

But President Barack Obama and lawmakersin Congress are considering bills meant to address the issue of rising student loan debt. Some of the proposals include:

  • Obama has proposed extending the"pay-as-you-earn" repayment plan to all student borrowers. Theprogram limits student loan payments based on income but is currently onlyavailable 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 attoday's 3.86 percent rate and would pay for it by raising taxes on thewealthiest Americans.
  • Sen. Kirsten Gillibrand, D-N.Y.,introduced the Federal Student Loan Refinancing Act in May to allow borrowersthat received loans under the Direct Loan or Federal Family Education Loanprogram after July 1, 2006, to consolidate them into one with an interest rateof 4 percent or less. Instead of paying more than $47,600 over the life of a20-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 removeeducational loans from the list of debts that can't be discharged inbankruptcy.
  • The Student Right to Know BeforeYou Go Act of 2013, with Republican and Democratic sponsors, require collegesto report data to offer students cost-benefit analyses comparing how much theycan expect to earn in a particular field with how much they will owe afterearning a degree in a given subject.
  • Sen. Marco Rubio, R-Fla., hascalled for "student investment plans." Private investment firms wouldcover tuition costs that could be repaid later as a fixed percentage of agraduate's income for a set number of years, regardless of whether that amountcovers the total debt.