In March 2019, U.S. student debt rose to $1.59 trillion, affecting an estimated 45 million Americans. From politicians and journalists to students and business professionals, everyone is debating the best ways to cap student debt and provide much-needed relief to graduates. But how did the student debt crisis become so severe, and what can the government do to alleviate it?
To learn more, check out the infographic below created by the Ohio University online Master of Public Administration program.
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the Student Debt Crisis
Student debt is growing every year, with more and more students taking out loans for higher and higher amounts as tuition continues to increase. Research has shown that minority students are at a particular disadvantage when applying for loans and paying them off.
Student Debt Statistics
Studies show that 1 in 6 Americans owe money on a federal student loan. Looking at the class of 2018 reveals that 69% of college students took out student loans, which translates to an average of $29,800 in student debt. Additionally, 14% of their parents took out an average of $35,600 in federal Parent PLUS loans.
The median monthly student loan is $222, and the average monthly student loan payment is $393. Unfortunately, 11.5% of student loans are either in default or overdue by at least 90 days.
The average debt of a 2017 graduate is $28,650 for public and nonprofit colleges, $32,300 for private nonprofit colleges, and $39,950 for for-profit colleges. Additionally, private loans represented 15% of debt carried by the class of 2017, a number that breaks out to an average of $18,500.
The Racial Aspect Of the Student Debt Crisis
According to the Roosevelt Institute, nearly 40% of black borrowers who left school in 2004 defaulted on their debt within 12 years. Black borrowers with undergraduate degrees are also five times more likely to default as whites. Additionally, black graduates have an average of $7,400 more in debt compared to whites. Reasons for this discrepancy include existing racial wealth gap and discrimination in the credit market.
How Did We Get Here?
The student debt crisis’ roots tract to the philanthropic efforts of Ivy League schools and education societies. But once legislation was passed to support loans to pay for higher education, the number of student borrowers – and the amount of student debt – soared.
In the 1600s, several Ivy League schools set up scholarship funds. In 1815, the American Education Society (AES) was founded to help aspiring ministers attend college; four years later, AES replaced scholarships with loans, eventually requiring students to pay them in full with interest. While schools followed the loan model, the stigma attached to debt kept student debt levels moderate.
1944’s GI Bill provided direct grants to returning veterans, and the National defense Education Act of 1958 (NDEA) was passed to ensure the U.S. wouldn’t fall behind the U.S.S.R. in the space race, and NDEA’s funds eventually became loans. 1965’s Higher Education Act eventually led to guaranteed private educational loans, which led to the rise of student loan-related companies like Sallie Mae and a promoted belief that a college education should be paid with borrowed money.
How the Government Can Provide Relief
Various government and nonprofit programs are available to help students repay debt. In addition, two senators have proposed solutions for eliminating student debt.
Cancelling Student Debt
Senator Elizabeth Warren has proposed forgiving up to $50,000 in student debt for individuals with a household income of less than $100,000. This proposal would be funded by a special tax paid by the wealthiest Americans. Senator Bernie Sanders, meanwhile, has proposed cancelling debt for all borrowers via a “Wall Street” speculation tax that would tax stock, bond, and derivative trades.
The pros to these plans include a possible lift to the GDP and a decrease in unemployment, bankruptcy, foreclosure, and default on medical bills. However, there are numerous potential cons. These include the wealthiest Americans receiving the highest benefit and an increase in the wealth gap between black and white households.
Other Potential Solutions
There have been other proposals to handle debt that don’t include cancellation. These include boosting the student loan interest, offering federal loan refinancing, capping loan repayment amounts to 10% of income, and allowing student loan debt to be discharged in bankruptcy.
Nonprofit Organizations and Government Programs Making a Difference
There are numerous entities actively trying to reduce the student loan burden. SponsorChange, for instance, are matching volunteers with work based on their skills in exchange for funds to pay for student loans. Another helpful group is AmeriCorps, whose volunteers serve full time for 12 months and receive the maximum amount for the Pell Grant that year. Finally, National Health Service Corps (NHSC) allows clinicians to receive up to $50,000 to repay medical school loans in exchange to providing health care to underserved populations.
Solving the student debt crisis will require the involvement of lenders, nonprofit organizations, higher educations institutions, and government officials. Public administration professionals passionate about solving the student debt crisis can expect to work with leaders across education, government, and finance to propose legislation and develop government programs supporting college students.