A Generation Stalled
42 million students. 1.3 trillion in debt. The student debt burden in America, broadly quantified.
While student loans are vital to provide access to higher education, the student debt also shapes the financial reality of newly-minted college graduates. This reality has become increasingly bleak.
Roughly seven in 10 college seniors will graduate with student loan debt. A decade ago the average student loan balance sat at $18,550; today, that number has jumped to $37,172. The average student loan payment is $350 per month on a standard plan, or $4,200 per year, before taking into account any late-payment penalties, compounding interest, or interest rate hikes. These numbers represent a millstone hanging around the necks of millions of college graduates. Indeed, more than seven million borrowers are in default, and millions more are behind on their payments.
So, how did we get here? Several economic trends conspired to form a chasm between the cost to attend college and the resources available to fund it: middle-class incomes stagnated, states steadily reduced their historical investment in public universities, and college tuition increased at an unprecedented rate. Therefore, as state funding evaporated, incomes stagnated, and tuition increased, students borrowed to make up the difference. But the bill always comes due.
According to the Bureau of Economic Analysis, state governments contributed 54 percent toward the total cost of higher education in 1980. By 2014, however, states contributed just 37 percent. Had states continued to fund public higher education at the 54 percent rate, more than $500 billion would have been available to fund public colleges and universities—roughly the same amount of outstanding debt currently held by students who enrolled in those schools. Instead, some public colleges and universities saw state support decrease by more than 30 percentage points. During the same time period, college tuition rose more than 500 percent, or two-and-half times the rate of inflation.
Despite being educated, the so-called key to the middle class, these countervailing economic forces have negatively altered the financial trajectory for millions of college graduates. And they will likely never regain the ground they have lost, and continue to lose, trying to repay their staggering debt obligations. Compounding the problem: student loans are virtually the only type of consumer debt that cannot be discharged in bankruptcy. Far too many graduates are now consigned to a future in which they can expect to take jobs outside of their chosen field, to work more than they desire, or to work more than one job to make ends meet—their lives dictated by their student loan bills. “My loans are a black cloud hanging over me,” as one graduate put it. “I’m a student debt slave.”
Furthermore, aside from the painful, personal aspect of this issue, crushing and inescapable student debt also leads to a number of macro-level social and economic negatives:
- Graduates delay major purchases like houses or cars, in addition to postponing marriage and/or having children;
- Graduates forego “public interest” jobs, draining the talent pool for lower-paid, but critical job sectors like education, government, and nonprofits; and
- Graduates from elite schools funnel toward the financial industry or other higher-paying power centers, reducing socially beneficial entrepreneurship and innovation.
Moreover, imbalances between graduates with student loan debt and those without exacerbates income inequality, limiting the economic opportunities for families carrying debt and creating a more unequal society. Thus, student loan debt affects much more than just the individuals struggling to pay their monthly bills—the financial burden hamstrings our entire economy, leaving a reservoir of productive potential untapped.
During the 2016 election season, it is critically important to review and consider the impact proposed education policies will have on this nation going forward. From the top of the ticket on down, lawmakers at the state and federal level will play an outsized role in shaping the economic reality for future generations of Americans. For their part, Hillary Clinton and Donald Trump, alongside the Democratic and Republican parties, respectively, stand on opposite ends of the spectrum with respect to affordable education. While Hillary Clinton devotes an entire section of her platform to this important issue—proposing to make public higher education mostly debt-free for future students, in addition to easing the burden felt by current borrowers—Donald Trump does not even appear to take a concrete stance the issue. Given Donald Trump’s history of fleecing the students who attended his namesake university, however, it is unsurprising that affordable education is not at the forefront of his domestic policy agenda. The Republican Party platform fares no better: devoting three paragraphs, out of 62 pages, to college costs.
While numerous issues are important to consider when deciding how to vote, student loans are especially so; they touch the lives, directly or indirectly, of nearly every single American. As such, it is our responsibility, as citizens and voters, to give education policy the consideration it deserves to ensure that access to higher education is broadly available and continues to represent a path to prosperity—not despair.
Photo Credit: Joe Brusky