In April 2022, the amount of U.S. student debt reached $1.75 trillion, affecting an estimated 46 million Americans. Student debt crisis stories have sparked an ongoing debate among politicians, journalists, students, and business professionals. The critical issue involves 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 (MPA) program.
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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 minority students are at a particular disadvantage when applying for loans and paying them off.
Student Debt Statistics and Demographics
Studies show that 12.9% of Americans have student loan debt, a number that translates to one in eight Americans. Looking at the class of 2019 — the last pre-pandemic graduating class — reveals that 62% of college students took out student loans, which translates to an average of $28,950 of debt per student. Additionally, 14% of their parents took out an average of $37,200 in federal Parent PLUS loans.
Meanwhile, the average current monthly student loan payment is about $460, according to the Education Data Initiative. Unfortunately, the report also states that on average, 15% of student loans are in default at any given time. It also states that 11% of new graduates default within the first 12 months of their repayment period.
The average debt of a 2020 graduate is $28,600 for those who attended a public college or university. The average climbs to $33,900 for private nonprofit colleges and $43,900 for private for-profit colleges. Additionally, private loans represented 7.61% of debt as of June 2021, a number that translates to $131.10 billion.
The Roosevelt Institute reports 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. Additionally, Black graduates have an average of $7,400 more in debt compared to Caucasian students. Reasons for this discrepancy include the existing racial wealth gap and discrimination in the credit market.
History of Student Loan Debt
The roots of the student debt crisis can be traced to the philanthropic efforts of Ivy League schools and education societies that offered loans to lower-income students who couldn’t pay for tuition outright. But once the legislation was passed to support loans for higher education, the number of student borrowers — and the amount of student debt — soared.
In the 1600s, the very first scholarship fund was established. 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.
The 1944 GI Bill provided direct grants to returning veterans. 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 for education eventually became loans. The 1965 Higher Education Act eventually led to guaranteed private educational loans. This, in turn, led to the rise of student loan-related companies like Sallie Mae and a promoted belief that a college education should be paid for with borrowed money.
Student Loan Debt Solutions
Various government and nonprofit programs are available to help students repay school debt. In addition, two senators have proposed solutions for eliminating student debt.
Canceling 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, which she formally introduced to the Senate in 2020 along with Senator James Clyburn, would be funded by a special tax on the wealthiest Americans. Senator Bernie Sanders, meanwhile, has proposed canceling debt for all borrowers via a Wall Street speculation tax that would tax stock, bond, and derivative trades.
The pros of these plans include a potential boost to the country’s overall economy and could lead to a decrease in unemployment, bankruptcy, foreclosure, and default on medical bills. It could also help narrow the gap of racial income inequality. However, there are numerous potential cons. These include a disproportionate benefit for high-income (and highly educated) households that some argue might actually increase the wealth gap.
Other Potential Solutions
There have been other proposals to manage student loan debt that don’t involve cancellation. These include streamlining existing student loan forgiveness programs, reducing interest rates, expanding Pell Grants, offering tuition-free college for students at the associate degree level, and allowing student loan debt to be discharged in bankruptcy.
Nonprofit Organizations and Government Programs Making a Difference
A number of entities are actively trying to reduce the student loan burden. The Rolling Jubilee fund, for instance, raises money to buy debt, including student debt, from lenders and then cancels the debt outright.
Another helpful group is AmeriCorps, whose volunteers serve full-time for 12 months and receive the maximum amount for the Pell Grant that year.
Additionally, the Shared Harvest Fund helps those in student loan debt connect with various volunteer organizations, where they can work in exchange for paying down debt.
Pushing Toward Important Change
Solving the student debt crisis will require the involvement of lenders, nonprofit organizations, higher education institutions, and government officials. Public administration professionals who are 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.