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Summary

The student loan debt crisis has many people across the nation rethinking the university and job training systems. According to Forbes, 45 million borrowers nearly have a collective $1.6 trillion in student loan debt, falling just behind the collective debt of the mortgage industry.

The Higher Education Act of 1965 (HEA) set the tone for the federal government’s role in higher education funding and oversight. Most importantly, Title IV of the legislation addressed the federal government’s role in ensuring equitable access to higher education through funding. The HEA has been modified eight times and today it lays the groundwork for higher education advocates’ changemaking. Amendments to the HEA have been the basis for higher education reform. In particular, the revisions to Title IV of the HEA have included some of the major policies outlining how the federal government and universities approach equity — policies here dictate how the government allocates money to students with financial need.

The HEA also lays the groundwork for the government’s role in promoting loans and tax credits over outright grants. Modifications to the bill have slashed the prominence of grants by incorporating a growing number of amendments which favor loans. These include: providing families who take out student loans with tax credits; allowing federally subsidized loans to be administered by private companies; lifting the cap on how much money a student can take out in loans.

The legislature was born out of WWII and Cold War era college grant programs which supported soldiers and low-income students with grants based on their financial need (this was the birth of the federal Pell Grant). The grants did not have to be repayed, and the government was not necessarily seeing a tangible return on their money, so the legislature morphed into a mix of grants, guaranteed loans, and tax credits — a move to give the government a pass on providing more money to students and to appease the middle-income families in the face of higher costs of college. In the late 70s the government provided favorable rates of returns and a pathway for private lenders to disburse money to middle- and low-income students. The rising cost of college and shrinking availability of grants for education spiraled out of control throughout the 80s and 90s until student loan debt began to be seen as a crisis. The move away from subsidized education towards private lending, in conjunction with colleges raising tuition because loans existed to cover it, worked to commodify higher education and put millions of students in debt whilst lining the pockets of private lenders.

Plenty of statistics exist analyzing the demographics and concentrations of this debt and who it affects. Currently, the average cost of student debt exceeds $30,000 — a record high. Additionally, more than half of that debt is concentrated among borrowers under 34, and the largest debt is held by students attending for-profit colleges. Those students are also more likely to default on loans. The factors driving rising student debt include increases in tuition, more students going to college, and the skyrocketing cost and attendance rate of graduate schools. Increases in the demand for graduate and professional degrees in today’s job market, in addition to student loans becoming the norm, have allowed graduate schools to increase costs with little risk of a decrease in enrollment. While borrowing and repayment looks different for everyone, it no doubt influences decision making, lifestyle, and opportunity to invest in other types of capital, such as a home, investment property, stocks, or even futher schooling.

Analysis

The impact of the Higher Education Act of 1965 and its various amendments are still felt today. The rise in student loan debt has caught the attention of lawmakers across the nation, notably Democratic Senators and 2020 Presidential Candidates Bernie Sanders and Elizabeth Warren. It has also garnered attention from the media in the form of celebrity promises to pay off “Class of 20__’s” student loans and student activists’ calls for loan forgiveness.

This form of debt is troubling for society at-large and not just for the individuals who default. The looming debt is a major factor influencing the decisions of this group of young and middle-aged graduates, potentially changing the traditional American paradigm of success: getting a job, buying a home, and becoming independent of one’s parents. According to Federal Reserve researchers, an estimated 20% of the decline in homeownership can be attributed to student loan debt. Some proponents for free college tuition programs argue that free college and reduction of student debt will lead to higher earnings and therefore a better impact on the economy at large.

Although we can’t know for certain how this might change the future of society or our college system, especially with the effects of the Covid-19 pandemic still unknown, perhaps a look into the 2008 Great Recession can give us some hints. With job prospects low, many individuals sought higher education degrees to get jobs in the changing economy amid widespread financial insecurity. Although the economy bounced back up until recently at least, the group of 2008 Recession era borrowers still holds a significant amount of debt, with borrowers over 30 more likely to default and those over 40 holding nearly double the amount of debt of folks who borrowed just 5-10 years earlier. Due to Covid-19, job prospects once again aren’t stable and without income the risk of loan default is omnipresent. Moreover, the cost-benefit ratio of college is being questioned. Lessons from 2008 should be a warning that the debt will not disappear even if the economy makes a comeback.

Deciding to take out a student loan is a major, but necessary, undertaking for many — not being able to make payments is a risk that comes with severe consequences, particularly for people of color who already face economic barriers in many forms. One recent federal study, for example, found that six years after enrolling in college in 2011-2012, 13% of white borrowers were in default, yet default rates were 20% for Latinx borrowers and an alarming 32% for Black borrowers. Additionally, students who received federal grants and students with dependents, whether or not they graduated, are much more likely to take out and to default on loans. The result is that many students with lower incomes are either in long-term debt or in default status. This can lead to lower credit rates and inability to take out loans for other financial investments, ultimately keeping borrowerss of color and poor borrowers on the lower end of the borrowing and capital wealth spectrum.

The existence of this debt is troubling for  future generations. How will cohorts of well-educated, debt-riddled adults expect to invest in other financial assets or assist their children in paying for college if they still haven’t paid off their own loans or have already defaulted? There is potential here for the higher education economy to be reorganized through policy addressing access to and necessity of higher education in the modern workforce. There is also room for the goals and aspirations of the generation of adults in debt, and their kin, to shift away from higher education. Finally, there’s potential for the government and university systems to take action to ensure that the value of a college education can be realized by anyone without the threat of decades-long loan repayment.

The slew of recent legislation proposed in the wake of Covid-19, and even prior to the pandemic, is promising, but very little action has been taken legally so far; the President’s federal loan forbearance is a band aid, but it ends on December 31 of this year. Newly proposed regulations around loan forgiveness, loan consolidation, and income-based plans have yet to be voted on by legislators despite a wave of support for amending the Higher Education Act and increasing the federal government’s role in subsidizing education. It seems lawmakers recognize the severity of the current economic crisis and are aiming to protect borrowers, but there is only so much that can be done against private lenders — if the government allows private lenders to set the terms for student loans, the government cannot go in and change their policies on a whim, as the companies have been operating legally, if not ethically. Plus, for those already in default, some of the damage has already been done: the government cannot “fix” everyone’s credit score or reimburse years of loan payments in a thorough and meanigful way.

Additionally, these proposals are only short-term solutions for those already in debt. Large scale systemic change is needed to adequately address the rising cost of the university system and diminishing federal and state subsidies. Otherwise student debt will continue to rise and impact the lives of millions who were attempting to better their lives through education. The complexities of who would benefit from proposed debt forgiveness and reorganization of student grant and loans must be considered carefully. For example, those with the greatest student loan debt often have the highest income upon graduating, repaying the loans is somewhat reasonable. On the other hand, those who take out loans and don’t graduate often default or have too low an income to make significant headway on their debt. The impact on forgiving loans for these two “types” would be drastically different. Work is being done to address this in a thoughtful, equitable way, but legislators need to make informed policies and take action soon in order to ensure everyone who wants to is able to access and benefit financially from quality higher education.

Resistance Resources:

Student Debt Crisis –  They are fighting for reform in student debt and borrowing policies and assisting borrowers with their financial issues and questions. Get involved with them to learn more, assist borrowers, share your story, or contact legislators.

Council for Opportunity in Education – COE provides resources for low-income, first-generation, and students with disabilities to access college, COE advocates for equity in education through its member organizations and outreach. Get connected with advocacy tools and send emails to congress through their site to advocate for equity and funding in higher education.

The Education Trust – This nonprofit organization fights for equity in education through research and policy advocacy. Check out their Higher Education section to take action and get connected with resources to write to your representatives about legislation related to Higher Ed.

 

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