The burden of student debt
19/07/23 01:21
The folks I know have mixed feelings about student debt and debt forgiveness. While some folks celebrate the efforts of the Biden administration to help people with educational debt, others think that perhaps the Supreme Court was correct in overturning the original Biden plan, saying that it was an over reach of Presidential power and that such a sweeping program must require congressional consent.
Laying aside the inability of the United States congress to pass very much effective legislation because of extreme partisanship and a few antiquated rules of procedure, it does seem like the problem of student debit should be addressed by legislation. After all the crisis is the result of laws that have allowed the situation to develop.
However, I am a bit tired of people my age saying, “I paid my student loans, they should pay theirs.” This statement simply ignores the huge difference between the situation in recent years and the situation we faced when we were students. Susan and I went to undergraduate school and graduate school together. Our total combined student debt after earning our degrees was $7,500, financed at 3%. I recently read that the average debt for a single student going straight from undergraduate school through a master’s program is $90,000. The average federal loan interest rate is 6.36%, up 24% since 2020. Private loan rates are typically higher, and can be as high as 16.2%. Most student loan debt is federal with interest rates between 4.99% and 7.54%.
There are plenty of professions, ours included, that simply don’t provide sufficient income for the debt we would have accumulated had we completed our educations in 2020. And when students fall behind in payments they incur additional fees.
Comparing how my generation dealt with student debt with how the current generation is dealing with it is meaningless. We simply didn’t have the amount of debt and we had the means to repay it even with modest salaries.
There are a lot of other problems around student debt. A number of for-profit colleges and universities encouraged student debt by promising direct placement into high-paying jobs upon graduation. They failed to deliver those job placements. Furthermore, they oversold the value of their educational programs. Some of those sales pitches amounted to scams. There has been quite a bit of publicity given to the ways students were enticed to incur debt believing that the educational programs would provide income to offset the debt. The educational institutions were receiving payment for services, sometimes at inflated rates, knowing that their target audience didn’t have to afford to pay the price of education because it could be covered by loans. More than a few of those educational programs were worthless in terms of providing income.
Another problem is that when someone is unable to make full payments on loans, fees and interest pile up. I recently heard of a student who graduated with $21,000 in debt. That student has made payments on the debt, but has not always been able to make full payment of the monthly amounts. After 20 years of payments, the payoff of the loans is now over $100,000. They have been paying for 20 years and now owe over four times the amount borrowed.
Add to that that simply defaulting on a student loan does not erase the debt. Congress has passed laws that make it challenging to have student debt discharged in bankruptcy proceedings. Unless very narrow criteria are met, people can go through a bankruptcy believing that they have gotten past their debt only to find that the student debt, with additional fees and charges persists. It can prevent those who owe from establishing a credit rating decades after a bankruptcy.
Student debt is crippling the economy. Those struggling under the burden of the debt are unable to fully participate in the economy. They are forced to live a poverty lifestyle instead of being able to invest in homes, retirement savings, and other items that boost the overall economy for the entire country.
The issue of student debt is effectively placing the cost of education beyond the reach of many people. Those who carefully study the debt to income ratio may, in many cases, conclude that the investment in higher education, especially graduate school is simply not a paying investment. The choice to forgo education because of financial limitations may make business sense, but it decreases the options for those who fail to obtain education and increases the gap between high wage earners and those who earn less. The rich get richer and the poor get poorer either way. If they are not impoverished by the burden of high debt, they are impoverished by the lack of education and the inability to obtain high paying jobs.
There is no doubt that the Biden Administration is seeking to decrease the amount of student loan debt. Following the ruling of the Supreme Court, new loan forgiveness and refinancing programs have been put into place. Additional programs are promised. Whether or not these will be challenged in the courts and whether or not they will go into effect remains to be seen. In the meantime, loan repayment relief programs that were put into effect during the Covid pandemic are now expiring and payments need to be resumed. Fees will continue to accumulate. Repayment amounts will continue to increase.
These issues could be addressed legislatively, which seems like the practical way to seek solutions. However, the federal legislature is at a complete standstill with virtually no meaningful debate and no compromises. Party affiliation dictates every vote, with party leaders holding the purse strings for campaign finances and legislators forced to spend their entire term of service raising funds to continue to wage multi-million dollar campaigns for reelection.
I wonder what they might do if they believed that freeing people from student loans might transform them into campaign donors.
The bible has strong opinions on charging interest on debt and several rules about debt forgiveness. Forgiving debt is a virtue, not a problem. I don’t expect the federal government to embrace biblical financial management as official policy, but I wish that some of those who claim to be Christian would at least learn a bit about those Biblical teachings.
The problems will remain - with effects that last decades into the future - until we find a solution.
Laying aside the inability of the United States congress to pass very much effective legislation because of extreme partisanship and a few antiquated rules of procedure, it does seem like the problem of student debit should be addressed by legislation. After all the crisis is the result of laws that have allowed the situation to develop.
However, I am a bit tired of people my age saying, “I paid my student loans, they should pay theirs.” This statement simply ignores the huge difference between the situation in recent years and the situation we faced when we were students. Susan and I went to undergraduate school and graduate school together. Our total combined student debt after earning our degrees was $7,500, financed at 3%. I recently read that the average debt for a single student going straight from undergraduate school through a master’s program is $90,000. The average federal loan interest rate is 6.36%, up 24% since 2020. Private loan rates are typically higher, and can be as high as 16.2%. Most student loan debt is federal with interest rates between 4.99% and 7.54%.
There are plenty of professions, ours included, that simply don’t provide sufficient income for the debt we would have accumulated had we completed our educations in 2020. And when students fall behind in payments they incur additional fees.
Comparing how my generation dealt with student debt with how the current generation is dealing with it is meaningless. We simply didn’t have the amount of debt and we had the means to repay it even with modest salaries.
There are a lot of other problems around student debt. A number of for-profit colleges and universities encouraged student debt by promising direct placement into high-paying jobs upon graduation. They failed to deliver those job placements. Furthermore, they oversold the value of their educational programs. Some of those sales pitches amounted to scams. There has been quite a bit of publicity given to the ways students were enticed to incur debt believing that the educational programs would provide income to offset the debt. The educational institutions were receiving payment for services, sometimes at inflated rates, knowing that their target audience didn’t have to afford to pay the price of education because it could be covered by loans. More than a few of those educational programs were worthless in terms of providing income.
Another problem is that when someone is unable to make full payments on loans, fees and interest pile up. I recently heard of a student who graduated with $21,000 in debt. That student has made payments on the debt, but has not always been able to make full payment of the monthly amounts. After 20 years of payments, the payoff of the loans is now over $100,000. They have been paying for 20 years and now owe over four times the amount borrowed.
Add to that that simply defaulting on a student loan does not erase the debt. Congress has passed laws that make it challenging to have student debt discharged in bankruptcy proceedings. Unless very narrow criteria are met, people can go through a bankruptcy believing that they have gotten past their debt only to find that the student debt, with additional fees and charges persists. It can prevent those who owe from establishing a credit rating decades after a bankruptcy.
Student debt is crippling the economy. Those struggling under the burden of the debt are unable to fully participate in the economy. They are forced to live a poverty lifestyle instead of being able to invest in homes, retirement savings, and other items that boost the overall economy for the entire country.
The issue of student debt is effectively placing the cost of education beyond the reach of many people. Those who carefully study the debt to income ratio may, in many cases, conclude that the investment in higher education, especially graduate school is simply not a paying investment. The choice to forgo education because of financial limitations may make business sense, but it decreases the options for those who fail to obtain education and increases the gap between high wage earners and those who earn less. The rich get richer and the poor get poorer either way. If they are not impoverished by the burden of high debt, they are impoverished by the lack of education and the inability to obtain high paying jobs.
There is no doubt that the Biden Administration is seeking to decrease the amount of student loan debt. Following the ruling of the Supreme Court, new loan forgiveness and refinancing programs have been put into place. Additional programs are promised. Whether or not these will be challenged in the courts and whether or not they will go into effect remains to be seen. In the meantime, loan repayment relief programs that were put into effect during the Covid pandemic are now expiring and payments need to be resumed. Fees will continue to accumulate. Repayment amounts will continue to increase.
These issues could be addressed legislatively, which seems like the practical way to seek solutions. However, the federal legislature is at a complete standstill with virtually no meaningful debate and no compromises. Party affiliation dictates every vote, with party leaders holding the purse strings for campaign finances and legislators forced to spend their entire term of service raising funds to continue to wage multi-million dollar campaigns for reelection.
I wonder what they might do if they believed that freeing people from student loans might transform them into campaign donors.
The bible has strong opinions on charging interest on debt and several rules about debt forgiveness. Forgiving debt is a virtue, not a problem. I don’t expect the federal government to embrace biblical financial management as official policy, but I wish that some of those who claim to be Christian would at least learn a bit about those Biblical teachings.
The problems will remain - with effects that last decades into the future - until we find a solution.
