Young, educated, and indebted: Inside America’s student loan crisis

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US Student Debt
Factual Pursuit of Truth for Progress

ABUJA – Young adults in the United States of America will either skip formal training or chase their utopian American Dream by subscribing to debt and a college degree. At the time of this post, the US student debt crisis index has reached $1,905,081,091,888 – according to a daily tally updated by Student Debt Crisis Organization, a non-profit, dedicated to fundamental reforms in payment methodologies for higher education in the United States of America.

To give a face to the problem, I understudied the US loan system in terms of the staggering statistics mapping the crisis. The following themes emerged: The US student loan debt is the second-highest consumer debt index after the mortgage debt. There are more than 43 million borrowers (including federal, direct, FFEL, and Perkins loans) having an average student loan debt of $32,000 (Forbes Finance, 2020).

More perplexing are the debt statistics for 2021. Americans, though burdened by a global pandemic, also had rising college tuition costs warranting fresh loans. Upon graduating, 69% of college students in the Class of 2019 faced an average debt of $29,900 from loans secured to cover tuition only. Away from the averages, more than 3 million student loan borrowers have student loan debt greater than $100,000 – approximately 800,000 of them hold a loan debt greater than $200,000.

This debt stronghold is spread across age groups, with the age demographic of debtors set at 24-62 and the black community as the significantly most-impacted racial group of all debtors. But none of this stands out under the grim reality of student loan repayment in America. I coined a hypothesis:

Most Americans will take up a lifetime working assiduously to pay off their student loans.

Photo Credit – @playingmountain via LinkedIn

Biden administration and debt cancellation

Now faced with debilitating pressure, US President Biden has recorded an increase in open calls to cancel all or part of the existing federal student debt. President Biden had promised on his campaign trail to cancel $10,000 in student debt per borrower. Since becoming President, demands are higher. Experts have warned President Biden that an outright debt cancellation for America’s 43 million borrowers could have all sorts of policy implications.

It is useful to note that President Biden was not alone in making promises on the campaign trail. His counterpart Bernie Sanders announced a plan to cancel all $1.6 trillion of U.S. student loan debt. Elizabeth Warren also offered a plan to cover up to $50,000 in loan forgiveness for individuals earning less than $100,000 a year.

Recently, President Biden evaded direct questions on debt cancellation. The Biden administration is now turning to Congress to handle issues on debt cancellation and cites concerns with President Biden’s legal authority to cancel debt via executive action. The Biden administration has approved at least $16 billion in student loan forgiveness, according to the US Department of Education. President Biden seems to be taking a targeted approach to wiping student debt, but this may or may not include outright debt cancellation.

Former President Trump was also notable for providing relief to student loan borrowers through the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. It is clear that an effort to wipe out America’s monstrous student debt is underway, but what will fix the underlying problems in the ways that the average American will continue to pay for college?

Will student debt cancellation be America’s most-objective solution? If yes; what comes after debt cancellation? If not; what alternative pathways exist?

Everyone needs to be reasonable.

The opportunity cost of higher education in America

Americans are calling for outright debt cancellation. Discharging all of America’s student loan debt will satisfy individual debtors, but there is a brunt to bear for several other stakeholders in the educational sector.

Howard University Knight Chair, Professor Nikole Hannah-Jones, shared her student debt history via Twitter. This helped humanize some often overlooked nuances on the subject of student debt in America.

“The conversations against canceling student loan debt too often reveal a remarkable stinginess when it comes to helping our fellow Americans, but also a lack of understanding that most people could/would pay the actual debt but are buried by having to pay many times the original debt,” @nhannahjones commented via Twitter.

Hannah-Jones revealed in a series of tweets that she paid her loans for a decade, yet still owed more than she’d borrowed. “I didn’t pay the loan off until last year and by then I have paid maybe five times my original debt.” She wrote.

Interestingly, some Americans have succeeded in avoiding the burden of student debt and loans altogether. At Georgetown University where I obtained a master’s degree in 2020, my coursemate shared the unique steps taken by her parents to secure funding for her academic attainments:

Photo Credit – @jcwhittington via Instagram

“The best thing my parents have ever done for me was set me up for success. They could’ve been driving luxury cars and vacationing but they invested in me and I’m forever grateful for that.” @jcwhittington captioned a graduation day post on Instagram.

Now an award-winning journalist at Politico, Whittington graduated debt-free from Georgetown University, securing two degrees with no loans. She explains that when her parents found out they were pregnant, they set up a 529 college saving plan for her.

This tax-advantaged savings plan is designed to encourage savings for future education costs. The 529 plan can be sponsored by states, state agencies, or educational institutions and is authorized by Section 529 of the Internal Revenue Code. It works by investing your after-tax contributions in a mutual fund, then the investment grows on a tax-deferred basis to be withdrawn tax-free if the money is used to pay for qualified higher education expenses.

According to a survey, only 29 percent of Americans know that 529 plans were an option, making the education savings tool elitist to a degree.

Uncertainties in a land of limitless possibilities

There are a number of ways that student debt cancellation may become possible. The most profound will be to discharge student loans through the declaration of Bankruptcy.  Federal judges, Democrats, and Republican members of Congress must stay open to changing the law in order to standardize debt cancellation for all of America’s 43 million borrowers.

But will authorities give in to circumventing the law?

To what extent is cancellation even possible? In a phone chat with an American dad in Atlanta, I learned; “That’s not even possible. The schools are in trouble right now with all these issues from the pandemic and they need the money. Education is not free and everyone taking a loan knows that from the beginning. There are people and university livelihoods that are tied to this debt. It must be paid.”

Many like him and the former Federal Reserve Chair Ben Bernanke strongly oppose the cancellation of student debt. In this school of thought,  student debt cancellation would be “very unfair” to many – especially those who have paid off their loans.

US Rep Alexandria Ocasio-Cortez is one of many politicians that have pushed back on this thinking.“Things were bad for me, so they should stay bad for everyone else” is not a good argument against debt cancellation – student, medical, or otherwise. #CancelStudentDebt she wrote on Twitter. AOC elaborated via Instagram Stories how people can learn to develop empathy and support things they won’t directly benefit from.

Photo Credit – @AOC via Instagram

Ironically, the loan is not the problem. It is the interest on the loan that accrues exponentially and worsens when defaulted. The interest on the loan is the trojan horse that keeps you paying all your life. The reported average student loan interest rate among all student loans is 5.8%.

Policymakers have hampered the socio-economic importance of restructuring interest rates and debt repayment policies. With the unprecedented COVID -19 pandemic forcing many into financial hardship, job loss, and high housing/living expenses, the burden of student loans and debt repayment can easily impact mental health.  Studies have shown support for the dire consequences of unabating financial pressures. One of such is a decline in a person’s ability to concentrate on academic study.

 The Psychological effects on students and young adults are diverse:

  • Student loan indebtedness in America can be a  determinant for long-term romantic commitment (and marriages) due to growing anxiety about individual daily sustenance.
  • The burden of student loans can also result in outright disdain for education in young adults. Students tend to drop out, skip formal learning for skills development, or opt for online learning as a considerably cheaper pathway to higher education.
  • Today, young adults also tend to delay or cancel typical milestone achievements; marriage, childbirth, home/car ownership, travel experience, etc to seek academic attainment.

Will the Biden administration bow to the growing pressure from Americans to secure debt cancellation ad infinitum?

America’s student debt crisis has now amounted to a political debate. Time is all that’s in the way.

 

Evelyn covers beats relevant to public policy development, including media, education, and communications technology policy  (evelyn.epelle@kaftan.tv)

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1 COMMENT

  1. Great writeup Evelyn. This is a crisis that will continue to linger as long as policies or reforms are not put in place address it. Like you mentioned, loan is not the problem. It is the interest on the loan that accrues exponentially and worsens when defaulted and the 5.8% interest rate.

    There has to be a commonsensical way to resolve this
    – Put a cap on the compounding interest (5.8%) so that people are not paying 5 times what they borrow or a Max on the amount to be repaid
    – Put a discount rate for folks who pay faster or quicker
    – Allow more flexibility of payment…

    Could a Federal Education Security Program be created similar Social Security or Medicaid or FAFSA; that allows the population (Parents and Student) contribute to the Education Security Program so that they can benefit from it in the future.

    Cheers
    Abolaji

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