Student Debt in the US and Beyond
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As the 2020 US presidential race kicks into gear, student debt has made headlines recently as candidates begin to acknowledge the need for change and their plans to make a difference. Here’s what you need to know.
Assessing the Situation
Many news stories have assessed the severity of the situation, including NBC News, which offers five charts showing the scale of the American student loan debt problem.
The key takeaways from the charts? For starters, student loan debt totals have skyrocketed over the past decade with a total outstanding debt of $1.4 trillion. Not only has this figure more than quadrupled over the past decade, but it has also surpassed outstanding debt for both automobiles and credit cards.
The report also highlights that student debt is not a problem specific to young people. National Consumer Law Center lawyer Persis Yu said, “The number of seniors with student loan debt has exploded. We’re not just talking about kids and millennials. It impacts a large swathe of our population.”
And while the average monthly student loan payment ranges between $300-3200, there’s bad news here, too; people with low balances are the most likely to default.
Other news sources weighing in on America’s student debt problem include Bloomberg.com, which revealed approximately 2.8 million people owe at least $100,000, this number is rising, and it’s deeply troubling to many of them, while Paste Magazine explored the issue and potential solutions to it.
Some have even gone so far as to suggest that the student debt crisis could cause the next economic collapse.
There is some good news among the bad, however: According to a report from NPR, many teachers who’d worked at low-income schools through federal Teacher Education Assistance for College and Higher Education (TEACH) Grants had their grants (sometimes unfairly) converted to loans. Now, many of those teachers are getting relief thanks to a recent decision from the US Department of Education.
The Department’s acting under-secretary and acting assistant secretary, Diane Auer Jones, said, “We’ve put teachers who didn’t deserve this stress, this pressure, this financial burden in a position that is frightening and confusing. I can’t give them back those years, and I can’t take away the gray hairs and I can’t take away the stress. It seems like a small thing to do to say, ‘I’m sorry,’ but I’m very sorry. And we want to work to fix it and correct it.”
The presidential candidates weigh in
And there is more promising news for students and prospective students from those bidding to be the next leader of the United States. Democratic candidate Elizabeth Warren has garnered the majority of media attention for her proposal to cancel outstanding student loans. Her sweeping student debt cancellation plan would also make all public colleges tuition-free. Specifically, Warren’s plan would forgive up to $50,000 in students loans for people in households which earn less than $100,000 a year.
As reported by CNN, using analysis provided by the Warren campaign, this would offer relief to a whopping 45 percent of Americans living with crippling debt. Her plan also specifies where the funds will come from: the revenue from a proposed wealth tax of two and three percent on wealth over $50 million and $1 billion respectively.
“For two cents on the dollar, we could pay for universal childcare, universal pre-K [pre-kindergarten], universal college, and knock back the student loan debt burden for about 43 million Americans and still have nearly, just short, of $1 trillion leftover,” Warren told CNN. “It tells you how badly out of whack our economy is right now.”
Wondering just how the plan might impact you? Warren also provided an online calculator that shows what student loan debt cancellation will mean for them.
All of which begs the question: What do Americans think of Warren’s proposal? According to MarketWatch, the most recent polling data shows that two-thirds of registered voters polled by The Hill would support a similar plan to the one she has proposed.
At the same time, the plan has its critics, including higher education policy experts who fear relatively higher earners will come out ahead. The Urban Institute’s Matthew Chingos said, “How the benefits are going to be distributed depends not just on how the plan is structured, but on who holds debt and how much they hold. People in the middle, upper-middle [income quintiles] are getting more than their share of the population.”
Warren isn’t alone in supporting student loan forgiveness. Democratic presidential candidate Andrew Yang also came out recently in support of forgiving the bulk of student loan debt. “If you have a choice between hundreds of thousands of young people living in their parents; basements or investing that money back into the economy, we should choose the latter,” he said.
Unlike Warren (and Bernie Sanders), however, Yang does not support free college. Rather, he’s proposed giving every American adult $1,000 a month through his Freedom Dividend policy.
"Since only about a third of Americans graduate from a four-year college, making college free would help that top of the third of the population. [...] We have a lot of people heading to college that it isn't a great fit for college, so making it free would only be helpful for a certain population, which is why we have to invest in vocational and technical training,” Yang explained.
Another Democratic presidential candidate taking on student debt, albeit with a different approach, is Beto O’Rourke. He supports refinancing and lowering interest rates. “We have a 10 percent default rate. Let’s get that default rate down to zero by making sure that your payments are affordable,” he told voters. “Something is better than nothing and right now we are getting nothing from far too many of those who took out those loans.”
President Donald Trump has also addressed the need for remedying the problem. While his proposal would not do away with student debt, it would shorten the forgiveness timeline for all borrowers to 15 years while raising the cap to 12.5 percent of discretionary income from the average of 10 percent, according to Above the Law.
For a comprehensive summary of where the candidates stand on student loans debt, Robert Farrington recently broke it all out for Forbes.
The downsides of debt cancellation
Not everyone agrees that debt cancellation is a good thing, however. A CNBC video offers expert insight into the potential costs and benefits of a 2020 plan. In fact, loan forgiveness detractors cite several downsides, including asserting that student debt is an individual problem not concerning the US economy at large.
Brookings Institute’s Adam Looney further argues that Warren’s proposal is “expensive, regressive, and leaves many open questions about what will replace student loans for the millions of students that use them for graduate school, at private colleges, or to finance living expenses while enrolled.”
Some students, too, have argued against the plan, as reported by the Wall Street Journal.
A symptom not a cause?
But is the rising debt burden merely a symptom of a larger problem? The Trump administration has also taken steps to address the issue by hiring consulting firm McKinsey to evaluate the current federal student loan program, according to CNN.
Quartz writer Allison Schrager, meanwhile, suggests that shifting to income-based debt payments may get to the heart of the problem. In this scenario, debt repayment corresponds with income, which links back to how well universities prepare students to succeed in the workforce thereby spurring universities to look more closely at the “value” of their degrees. “If universities are paid based on student performance, they will need to become more price sensitive and have an incentive to lower costs,” Shrager insists.
WDET, Detroit’s public radio station, has also rounded up more perspectives on possible solutions to the problem.
Beyond the U.S.
News elsewhere shows the US is not the only country feeling the pinch of student debt.
Independent Australia recently reported on the degree to which Australians are also struggling, while The Financial Times reported on the Bank of England’s investigation of how student loans are affecting the UK’s economy. “Student loans are a very real burden, and there we particularly need to think about what the income-contingent tax liability that they create means — not just for consumption but also for the ability to service other debts. So that’s the financial stability issue we are going to focus on,” a BoE representative told the Treasury Select Committee.
Nearly twenty-five percent of Canadian millennials carry student debt, with the median debt burden standing at $12,000 CAN. According to a recent study by Statistics Canada, this means that while the average Canadian millennial earns comparatively more than previous generations, their debt burden is heavier. Student debt coupled with rising housing costs in Canada has led to growing rates of income inequality that are disproportionately affecting millennials.
And while many European countries offer low-tuition or free-tuition tertiary education, student loans - and the debt graduates must repay - are still an issue. According to DutchNews.nl, one out of every five former students in the Netherlands are defaulting on paying back their student loans.
In the UK, the concern that information about student loans is incomplete or misleading is prompting conversations about how borrowers understand the financial ramifications of student debt.
As the 2020 US presidential election nears, we can expect a lot more attention on the issue -- hopefully galvanizing meaningful change toward addressing the issue.
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Joanna worked in higher education administration for many years at a leading research institution before becoming a full-time freelance writer. She lives in the beautiful White Mountains region of New Hampshire with her family.
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