A High School Senior's Solutions to Student Debt
Millennials, those born between the early 1980s and mid-1990s, are often cited as being lazy and burdensome to their society. They are generalized as being unemployed, in-debt and as holding useless degrees. They are newly graduated from colleges and universities in America in unprecedented percentages, making theirs one of the most educated generations immemorial, though their ability to become financially independent and stable has become increasingly challenging. Steven Rattner of the New York Times furthers that, "They [Millennials] are faced with a slow economy, high unemployment, stagnant wages and student loans that constrict their ability both to maintain a reasonable lifestyle and to save for the future." 18 to 34 year olds, after inflation-adjustment, are earning historically low wages compared to past generations. Rattner found that, "A typical millennial averaged earnings of $33,883 (in 2013 dollars) between 2009 and 2013. That was down 9.3 percent (after adjustment for inflation) in just a decade and is the lowest since 1980." This is certainly a shift in American culture, as, according to the Atlantic, just a few decades ago, recent high school graduates were able to lock down jobs they'd have for the majority of their lives and purchase homes at higher rates.
The American Dream did not hold the prerequisite of a college education, but rather it offered a route towards financial sustainability and comfort. However, instead of analyzing itself, present-day America has pushed its own flaws onto the Millennial generation which has only been the byproduct of an increasingly inequitable and challenging system. Today, institutions of higher education in the United States of America have systematically generated inequality through increased tuition and student loan debt.
Often what is cited when referring to the crux of the specific age demographic–the Millenials–is insurmountable student loan debt. Forbes reports that, "Americans have a staggering $1.3 trillion of student loan debt. The growth rate has been astonishing: ten years ago, the nation's student loan balance was only $447 billion." Time Magazine contends that, "student loan debt exceeded credit card debt in 2010 and auto loans in 2011," making it one of the deepest debt abysses in modern history, and second greatest debt of American households, only following mortgage repayments.
The effects of Student Loan debt could not be understated, for it also accounts for the several other factors often attributed to the Millennial generation. Liberty Street Economics of the Federal Reserve Bank of New York found that for most of modern American history, thirty-year-olds with a college degree have always purchased homes at higher levels than their uneducated counterparts. "However," they report, "this relationship changed dramatically during the recession. Homeownership rates fell across the board: thirty-year-olds with no history of student debt saw their homeownership rates decline by 5 percentage points. At the same time, homeownership rates among thirty-year-olds with a history of student debt fell by more than 10 percentage points. By 2012, the homeownership rate for student debtors was almost 2 percentage points lower than that of nonstudent debtors." In addition, similar trends have replicated themselves within the auto industry, the study also finds.
Further, perhaps one of the greatest effects of the prominence in student loan debt is an increase in inequality itself. The Huffington Post reports that, "College is...one of the most effective ways to fight inequality. As it becomes increasingly difficult for students to gain an education, it closes gateways to upward mobility. The effect is particularly potent for blacks. A recent study by Bhashkar Mazumder finds that, 'blacks have experienced substantially less upward intergenerational mobility and substantially more downward intergenerational mobility than whites.'" Thus, the inevitable burden of student loans on those who depend on them the most grows to dissuade educational attainment among lower-income students rather than encourage it, helping to perpetuate a cycle of social immobility.
In all, student loan debt has been a focus of policymakers, politicians and the general public. Clearly, it results in negative outcomes for the American economy, debtors themselves, and for the concept of education. It perpetuates inequality while damaging our nation's economy. However, this focus is misguided. Student loan debt is not the issue–it is simply a byproduct of a less publicized flaw in our higher education system: tuition.
Education is an investment. It is an investment that gains rewards for individuals and their futures, for governments and their economies, for nations and their populations' well being. In attempting to fix the issues surrounding debt and tuition, my goal is not to eliminate all debt whatsoever or make tuition free. An education does, in fact, have a price, and that is not an unreasonable concept. The goal is to make this investment, which has unbelievable benefits, a more manageable, accessible and affordable one–thus generating a more equitable society.
The primary issue is the rapid and unreasonable increase in tuition. As an effect of the Great Recession, it was necessary for state governments to slash their spending as taxes were also cut, but as the economy continues to grow present-day, it is time to increase spending again. US News reports that only five states–Illinois, North Dakota, Alaska, Wyoming and Montana–have higher spending per public than they did before the 2007-2009 recession, adjusted for inflation. My first policy change requires each state, over a period of five years, to gradually reach the spending per pupil dollar amount that it naturally would have reached by 2023 if the recession hadn't occurred. In addition, following this is a second policy regarding tuition that would ban public institutions of higher education from requiring more money from students than from state funds. It is not accessible or just for public institutions, which ought to be in the public interest, to become privatized in a way that blurs the practical line between private and public colleges and universities.
My third and final policy regarding tuition is a regulation on growth. Not only would my enforced state to student ratio discourage rapid hikes in tuition costs, but limiting any growth to a maximum of 2% per year–not including, of course, increase due to inflation–would help steady the chaotic increases some states have faced. Louisiana, for example, increased its tuition by 48% over a five-year period, according to the College Board. Though this will force states to increasing spending without increasing taxes, debt will not present an issue to the states, for a gleaming side of college education that often goes unnoticed when considering the benefits of attaining one is the benefit to society. The Association of Public and Land-grant Universities reiterates this with a focus on public/land-grant students. It contends that, "Over 60 percent of bachelor’s degree holders earn their diplomas from public universities and public university graduates play a central role in enhancing their communities. Moreover, those with college degrees are more than twice as likely to volunteer and they contribute nearly 3.5 times more money to charity." Further, "75 percent of bachelor’s degree completers vote in presidential election years, compared with about 52 percent of high school graduates." The same study reports that, "Governments also rely on college graduates for a disproportionate share of their tax revenues. Because college graduates typically earn more and higher earnings are taxed at an increased marginal rate, they contribute over $510,000 in taxes during their lifetime—$273,000 more than a high school graduate." They are less likely to require assistance from government programs like housing subsidies, Medicaid, unemployment benefits. The APLU concludes that, "those who graduated college are 3.5 times less likely to be impoverished and nearly five times less likely to be imprisoned. In all, lifetime government expenditures are $82,000 lower for college graduates than for those with high school degrees." Thus, though state governments will be spending more, they'll also be receiving more in taxes and other pecuniary benefits from those students they themselves had invested in.
Thus, my policy changes regarding tuition, which require state spending to increase to previously targeted levels without increasing taxes, a ban on students' contribution to tuition being higher than that of the state government and a regulation on growth, would create debt, but it would subsequently be offset by the economic and social benefits of a more educated population. In addition, such policy changes would make college more affordable by decreasing tuition. This, in effect, would help solve the issue of student loan debt simply by decreasing the amount of money owed.
However, the issue of student loan debt is not only the value of the debt, but also the system in which debt is repaid. My first policy regarding debt would make repayment a much safer system. Federal Aid comes in several forms. One such form, called Stafford Loans, come in two styles: subsidized and unsubsidized. The former means the federal government pays the interest while the borrower, the student, is still engaged as a student. The latter requires the student to be responsible for the interest while in school. The purposefully corrupt flaw in this systems lies in the maximum value of borrowing with each plan: the unsubsidized loan has a higher maximum borrowing cap per school year, which means students who depend on loans and cannot afford schooling otherwise are urged to take this unsubsidized loan. While it is logical that there be a higher interest rate on a larger loan, this perpetuates inequality by essentially forcing disadvantaged students to pay even more through interest when they were simply born without enough funds for a college tuition. Therefore, I propose the eradication of unsubsidized Stafford loans and the raise of the subsidized cap to unsubsidized levels. In addition, loans usually come from various lenders which all may have several due dates per month–a system that almost ensures missed deadlines which, to the lender's joy, then leads to accrued late fees. Students must apply for a Direct Consolidated Loan, a payment plan of once per month to a single lender. Instead of having to take that extra step, my second policy regarding loans makes every student loan taken a DCL to begin with in order to stream-line the payment method and save students money.
My last order in the field of federal student loans would slightly decrease the interest rate on PLUS loans, which are desirable for parents and students because they have no maximum value. Their current interest rate is 6.31%, considerably higher than that of Stafford loans, understandably due to a difference in maximum lending abilities. However, lowering this to a value of around 5% would help ease repayment options while still incentivizing Stafford Loans if not much money is needed to be borrowed.
My policy changes with regard to students loans also have a positive, collective byproduct: dissuading young people from using privatized loans. Private loans do not work on a fixed interest rate, meaning they could raise, forcing a student already in debt to pay more. They require a certain level of credit, which when not achieved increases the interest rate on the loan, forcing students with bad credit, desirous of attaining an education, to occasionally enter into severely risky and dangerous economic deals that negatively impact their futures. Lastly, by using Federal loans, students are investing in the economy and helping to sustain it through their payments of interest.
In all, my policy changes aim to increase accessibility to education and subsequently generate socioeconomic equality. More access to education means more educated young people. A nation with more educated young people offers a host of benefits to the national economy and society. In addition, by fixing the system in which student debt is repaid–by incentivizing subsidized loans, increasing borrowing caps, and dissuading privatized loans repayment options–the health of the economy will increase with generations of students who have, as Americans once had, attained an education that helped them achieve and contribute economically to the nation instead of been burdened by one.
An education has the potential to be life-changing. On moral, ethical and philosophical terms, it provides humans with the opportunity to fulfill their own potentials, stretch the boundaries of their minds and develop a personal and deep fascination with a study. Such a connection to field of study or task, as the Huffington Post purports, produces greater happiness. The article, titled, "Why Learning Leads to Happiness," states that, "In terms of happiness, a close companion of learning is the degree of engagement people have with tasks that provide them knowledge and fulfillment. People who are intensely absorbed in a task can lose track of time and place. Hours pass like minutes. They may be tired by the task but emerge energized and happy." Happiness is just one of the many effects of being intellectually engaged, a byproduct of attending a school or university.
Aside from this intangible benefit, my main focus when discussing the economics of higher education in America is equality and social mobility. According to the Brookings Institute, "Without a college degree a child born into a family in the lowest quintile has a 45 percent chance of remaining in that quintile as an adult and only a 5 percent chance of moving into the highest quintile. On the other hand, children born into the lowest quintile who do earn a college degree have only a 16 percent chance of remaining in the lowest quintile and a 19 percent chance of breaking into the top quintile." The power of a college degree itself is striking: an educated person born into a low-income household, perhaps poverty, could now be uplifted into the highest income bracket. There are few other pieces of paper that would deliver such a reward.