Solve for X, Where X=Student Loan Debt
$1,718,914,473,672. One trillion, seven-hundred and eighteen billion, nine-hundred and fourteen million, four-hundred and seventy three thousand, six-hundred and seventy two dollars. At the time this blog post is being written, the total U.S. student loan debt is only ticking upwards of this 13-digit number. On the individual level, hundreds of millions of U.S. students owe roughly $40,000 in student debt loans alone - that’s enough to make a down payment on a house, travel, start a business, or even invest. But instead, students are being crippled with the burden of student loan debt, which ironically arises from the well-intentioned desire to get educated for a better future.
Let me repeat: $1.7 trillion in national student loan debt. How did we get here? Why is education so expensive? Why is student loan debt so hard to pay off? What would a world without crippling debt look like? How could we make it there? Let’s talk about it.
What is the Student Loan Crisis?
Firstly, what exactly is a crisis? The Merriam-Webster dictionary defines crisis as “an unstable or crucial time or state of affairs in which a decisive change is impending, especially one with the distinct possibility of a highly undesirable outcome.” This definition seems pretty fitting, especially as college tuition only continues to rise with each passing year and according to the Wall Street Journal, student loan debt makes up the largest portion of non-housing debt in the U.S. Since the creation of the student loan system in the 1960s, the idea that these higher education loans were an essential investment in human capital blossomed into a way of life for many Americans.
As student loans and higher education became more and more accessible to students of all backgrounds, tuition rates increased, college attendance increased, and the vicious cycle of student loans and loan debt persisted. Here’s how it typically goes: apply for college, take out a student loan, interest accrues, graduate, (hopefully) find a job, more interest accrues, attempt to pay off loan among other debt and expenses, maybe even default on the student loan...and it goes on and on through generations of college students. The national student loan debt is predicted to hit $2T by 2021, and even $3T by the end of 2030, currently increasing at a rate of about 7% per year. The rapid growth of tuition rates exceeding the rate of inflation and paired with a lack of growth in wages has only made the student loan crisis worse over the past 60 years.
Source: Wall Street Journal
Today, many higher education institutions have come to rely on high tuition payments to fund their academic programs and activities, provide student services, and pay their presidents handsomely. The cause of high tuition rates and subsequently high student loans can also be attributed to the privatization of public higher education, essentially shifting the responsibility of college funding away from the states and over to students and their families. This is where the issue of student loan debt becomes a political issue rather than a human rights issue, debating whether or not the public should fund these education systems rather than being concerned about the access to affordable, quality education for the students.
The Implications of COVID-19 on the Student Loan Crisis
The COVID-19 pandemic is clearly, negatively impacting the higher education system through the decreased on-campus and housing fees, potentially decreased attendance due to remote learning or financial stress, and cancelled revenue generating events such as collegiate sports teams. Because so many colleges will feel the financial impact of the pandemic in these ways, the chances of a decreased tuition during this time period are slim-to-none. The drastic changes to the education system coming about due to this pandemic will even bring to question whether or not college is even worth it for many students and families.
Upon the switch of many higher education institutions to remote, online learning, students all over the U.S. were left to wonder whether they would still be paying the same, high tuition rates. Despite the financial crisis brought about by the COVID-19 pandemic, many tuition rates did not waver - at the very least, some institutions decided to freeze tuition increases. In an attempt to alleviate some pandemic-induced financial stress, the CARES Act passed by Congress in March 2020 provided some student loan relief for certain U.S Department of Education federal loans, including suspending loan payments, defaulted loan collection, and accruing interest for a limited time. While this act provided financial relief for some borrowers, it has been criticized for excluding other types of loans such as private loans, among other issues caused or ignored by this act.
To point out the elephant in the room, the U.S. unemployment rate during the first peak of the COVID-19 pandemic was at its highest since the Great Depression in 1933. So, the combination of relatively high tuition rates, relatively low employment rates, and a partially-inclusive CARES Act, ultimately resulted in either stagnant or worsening financial stress for many already in-debt Americans.
Solving for X, Where X=Student Loan Debt
Oh, how convenient it would pay off the national student loan debt with the net worth of roughly nine Jeff Bezos. Unfortunately, a potential solution to this crisis is far more complex than repayment in the form of billionaire entrepreneurs. So how could we do it? Well, one way that has been brought to light during the COVID-19 pandemic and CARES Act is to take this economic recession as an opportunity to cancel student loan debt, essentially posing the question: If we can suspend payments and interest for 9 months, why can’t we just cancel them all together? The idea of cancellation of student loan debt has been a topic of discussion for years, yet effective methods and processes of doing so are still up for debate and seemingly far from reach.
A few other solutions that have been proposed to support future student loan borrowers include a Student Loan Fairness Act, sponsored by Senator Elizabeth Warren, and a Free College proposal by Senator Bernie Sanders. The Student Loan Fairness Act aims to tie student loan interests rates to the federal reserve discount window rate, put a cap on interest capitalization at 10% of the initial borrowed balance, and give borrowers a few more options as far as applying to convert their loans to federal loans, or loan forgiveness for specific borrowers. Sen. Sanders’ free college proposal, on the other hand, aims to make college tuition free, and to allow for support in other ways such as loan refinancing and grants for low income students. Many states and colleges have adopted some variation of the free college idea, though the student loan debt shows that we still have a ways to go.
Essentially, an article from the Harvard Business Review points out that in order to find a solution to this crisis, we must look in the right places, which ironically do not include the higher education system itself. Imagine if a good portion of the current generation of incoming college students decided: Hm, going to college right now is just too expensive, I’m going to take a gap year to work, or travel, or volunteer. Many colleges would have no option but to cut out unnecessary expenses to lower the cost of attendance, so that they can still attract students and operate sufficiently. Employers could also contribute to lessening the student debt crisis by making competency more of a priority, rather than simply prioritizing education level. Furthermore, employers could even offer their employees benefits that could be directly applied to student loan debt.
Given the changes coming about in nearly every aspect of life during 2020 and the COVID-19 pandemic, I think it is safe to never say never, even when it comes to some sort of alleviation of the $1.7T student loan debt. The bottom line is that a solution to this crisis can be and must be found creatively, and outside of the actual system that perpetuates it.
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