Getting a handle on the student loan debt crisis
Updated: Sep 21, 2021
As a nation, Americans owe $1.6 trillion in student loan debt. That's making it harder for college graduates to be contributors to the American economy.
Student loan debt has increasingly become a crisis that is affecting the lives of millions of Americans. Amounting to $1.6 trillion, students and graduates are in need of a solution. There is a far reaching impact of this growing debt as it affects the economy and the quality of life for those with debt.
Student loan forgiveness has been a hot topic in the political sphere recently, particularly how hdebt forgiveness would realistically be implemented.
The history of student loans is complicated and deeply rooted to the core of both America’s government and its universities. But, let’s try to understand the crisis at hand by starting at the very beginning.
Student loans began as an effort to allow education to more Americans.
In 1957, the Soviet Union launched the Sputnik satellite into orbit, beating America into space.
The United States was intimidated and scared, fearing falling behind and no longer being the most advanced country. In a televised speech, President Dwight D. Eisenhower stated that, “One of our greatest and most glaring deficiencies is the failure of us in this country to give high priority enough to scientific education.”
The collective thought was that intellectual talent was being wasted or overlooked due to people not being able to afford a higher education. This led to Eisenhower signing a bill, the National Defense Education Act, in 1958 that allowed college students to borrow as much as $1,000 a year from the federal government to pursue higher education.
Over the years, this has allowed more people to attend college., But the cost of tuition has increased dramatically in recent decades,resulting in more and more students needing to take out larger loans to attend college.
According to VOX, in the early 1970s the average loan was around $1,000 a year, and now it is around $7,000 a year. It takes 5.1 academic years for the average American to graduate with a bachelor's degree. Additionally, undergraduate borrowers face a 2.75% interest rate on their direct subsidized and unsubsidized loans.
Factoring this all together, the average American graduating with a bachelor’s degree who used student loans to attend owes around $30,000. Keeping in mind that the American debt in total for college loans is $1.6 trillion, it’s easy to see how student loans pose a threat to the economy by holding back graduates.
The student loan debt crisis takes a heavy toll on the economy overall. Graduates with $30,000 already in debt cannot fully contribute to the economy in a positive way because they have to focus on paying off their loans.
Most federal and private loans allow a six-month grace period after graduation until payments on loans must be made.
People often choose to go to college in order to obtain a higher paying job, but the National Associations of Colleges and Employers reported that the preliminary average starting salary for the Class of 2018 graduates is about $50,004 - representing a2% drop from the average starting salary for the class of 2017 which was $51,022.
This slight decrease in starting salary is more problematic when considering that loan debts are not also decreasing. . Although they are highly qualified, graduates often have to settle for lower paying jobs in order to immediately start paying back their loans.
Kate Westervelt, a Chapman University graduate and entrepreneur, described this vicious cycle of loans and debt.
“When you have those bills over your head and you know you have to make a salary, you have to choose a job that paid you enough where you could pay your loans,” Westervelt said. “You had to work to live, to pay your loans. And all of those jobs right out of college didn’t pay enough, it was just enough to keep your head above the water so that the debt and interest wasn’t accruing, and even then it was accruing. That was awful. You had to try and find the highest paying job you could because the loans were out of control.”
This cycle makes it more difficult for graduates to contribute to the economy. A study on Scholarship America found that students with outstanding loan payments were 36% less likely to take out car loans or purchase a house because they have worse credit scores. This often leads to graduates going back to live with their parents instead of on their own.
Westervelt graduated in 2009 with close to $100,000 in student loans, and her post-college life is mostly focused on paying those off. Because her debt-to-credit ratio was not great, she and her husband were not able to get many loans they needed for major purchases, let alone loans with low interest rates. This ultimately made things such as buying a house, a car, or starting her company much harder.
In 2019, the Federal Reserve issued a report stating that the student loan debt prevented around 400,000 families from purchasing homes. Families needing to pay off huge amounts of money for their loans lead to an increase in their chance of default, which hurt their credit and ultimately their ability to obtain a mortgage.
The student loan crisis does not benefit the economy due to graduates getting lower paying jobs and inability to give back to the economy.
Prospective college students must see college as a business transaction.
Carol Connare was born and raised in New Hampshire. She currently works at University of Massachusetts at Amherst as a professor. As a university employee who also dealt with personal student loans, she added perspective from both ends of the spectrum.
Like many prospective college students, Connare had to base her decision of going to college around both the cost of tuition and the amount of money in scholarships she would receive. This led her to choose the University of New Hampshire, where she received almost a full academic scholarship. Since her parents were not able to financially support her, she had to think of college as a financial transaction.
“You’re not able to go wherever you want, to choose a college based on the climate. You have to go based on the money,” she said. “UNH offered me the most money, so I went.”
Connare was one of the lucky ones who was able to receive scholarships, which is not available to every student, so she avoided massive debt after college.
Westervelt had also received $22,000 in annual scholarships toward her education, but that only covered half of the $44,000 tuition needed to attend Chapman University. She graduated with $100,000 in debt.
Looking back at her experience and how much her loans have held her back, Westervelt said if she could go back in time, she would complete her general education credits at a community college and then transfer to a university afterward in order to save money.
This is the thought process of a lot of people once they graduate. It’s easy to want to go straight to college for the experience, however perhaps smarter for your future to attend community college first. This option is not normalized in society.
Alura Marshall, a current senior at the College of Charleston, described her thoughts about this.
“For the educational aspect, yes I wish I had completed my general education at a community college. But for the social aspect, no. College builds connections, teaches you how to communicate and live with other people. You meet your best friends and get to start your life on your own, not living with your parents.” she said, “However I think it should be made more clear the debt you get yourself into when committing to a college.”
When choosing a college, Marshall viewed it as a business transaction. She had to stay in South Carolina in order to continue receiving her Palmetto Fellows Scholarship. Her choice of the College of Charleston was completely financial based, however she is still set to graduate in May 2021 with a total of $30,000 in debt.
Student loans greatly harm the mental health of the borrowers.
The toll that student loans take on mental health is no secret. Take Westervelt’s story. She graduated with $100,000 in both federal and private loans. She discussed how her loans negatively affected her life for a decade after her graduation. It affected everything from her business and buying a house, to her relationship with her husband. She and her husband Paul had a combined student loan debt of $450,000. As one can imagine, this was a difficult situation for them.
“It affects your relationships and your marriage because then you meet somebody who also has student loans and the two of you have to fight tooth and nail together to come up for oxygen, but you can't do any of the fun things that would warrant a good healthy relationship,” she said. “You’re just struggling to have a healthy relationship while you drown in debt. Those two don’t really coincide to make for a happy couple.”
Although Westervelt and her husband have gotten their loans “in control,” it took selling their house to do so. After they sold their house, Westervelt was able to pay off her private loans.
“The day that I paid off my private loans for $60,000 was one of the best days of my life,” she said. “It was a crazy feeling, but I just kept thinking of all the things I could have done with that money. I could have made a huge donation to some charity, or started another business.”
Marshall has her own experience with her mental health throughout her college career. She is the child of a single mother with bad credit, so she has faced paying for her education on her own. Due to this, she has had to have a job throughout college. She works 5-6 days of the week on top of attending her classes. She admitted that the pressure of needing to pay for her college has taken away from the education itself.
“It is stressful, it worries me for life after college because I need to have money saved up, but I also have to pay for my own way of living. I am worried about interest rates, nobody ever teaches you about those. It’s kind of just like I don’t know what I am doing, I just threw myself into it because everyone says go to college to get a better career.”
Although education is important, the aftermath that student loan debt poses on the mental health of borrowers is detrimental.
Student loan forgiveness could be the answer
Student loan forgiveness has been a prominent topic in the political sphere as of recent due to the upcoming election. But how would student loan debt be forgiven?
The two politicians with the most prominent plans on how to execute this are Sens. Bernie Sanders and Elizabeth Warren. Warren would institute a tax on the wealthiest Americans whereas Sanders would create a “Wall Street speculation tax” that would essentially be taxing stock, bond and derivative trades.
Both are better plans than the current situation, but it is uncertain how and when something can be done. Currently about 1 in 8 people in the United States carry student loan debt. The Department of Education announced Aug. 6 that Student Loan Forbearance will be extended through Feb. 1, 2022, and that this will be the final extension. Many organizations are putting together resources to help students navigate their options once this ends and before any long-term solutions are determined.
Joe Biden has won the 2020 presidential election, and Democrats gained majority control of the Senate by virtue of a tie being broken by Vice President Kamala Harris. But how this Congress will rule on student loan forgiveness is still up in the air. Biden did extend the pause on collecting payments for federal student loans due to the pandemic through September.
For Marshall and Westervelt, such legislation would be a life changer.
“It would mean I wouldn’t have a monthly payment on top of already rent, utilities, the high cost of living in almost any city that I could use my degree in. It means I could probably get a loan for something that could actually benefit my life, but now I already have too many loans. It means an improved credit score,” she said. “I think that loans have a large impact on college students, especially those that are paying for it on their own.”
Westervelt took a deep breath before answering.
“Oh man, what a big question,” she said. “It would mean so many little things. It would mean less stress, overall better mental health, more savings for my kids education. Better health. Less loans means less stress, less stress means more health, more health means more happiness, more happiness means flourishing kids and economies. I guess it would mean freedom.”