One of the most pressing issues in the United States today is the ballooning debt accrued to finance education. Many students are required to carry debt to acquire a college degree, which they need to secure a job in the fourth industrial revolution.
In an article published in the Journal of Policy Analysis and Management, Decker (2020) argues that “Individuals are not wrong to expect education to pay off; rather, government is wrong to assume that the payoff will be so substantial as to justify shifting the cost of higher education away from states, employers, and institutions and on to individual students and workers.” Education-related indebtedness can follow individuals for years. Statistical data also show that it can have serious consequences on an individual’s financial wellbeing, and to a larger extent, on the economy of the nation.
Over 40 million Americans are affected by the student debt crisis. This article delves further into the details of the crisis: the average time to repay student loans, the history of the crisis, the people who are affected the most, and lastly, the proposed solutions.
The issue of student loan debt in America, which is now widely recognized as a national crisis, is prompting many students to weigh college cost and benefits. One of the essential questions that come into their minds is “How long will it take to repay my student loans?”
A survey with 61,000 respondents revealed that it takes borrowers more than two decades to pay student loan debt, on average. The average time to repay student loans among individuals who opted out of college and did not attain degrees is 17 years. In comparison, individuals with graduate degrees take about 23 years.
The above averages are well within the terms of repayment plans, which range from 10 to 30 years. Below is the list of options for students, sourced from the website of the Federal Student Aid.
Standard Repayment Plans: 10-30 years
Graduate Repayment Plans: 10-30 years
Extended Repayment Plans: 25 years
Income-Sensitive Repayment Plan: 15 years
Income-Driven Repayment Plans: 20-25 years
According to the National Center for Education Statistics (NCES), non-completers are more likely to default or stop paying for 270 days than people who attained bachelor’s degrees. Of non-completers, only 18.7% were able to pay off without defaulting 12 years after they started college. Meanwhile, in the same amount of time, 50% of completers were able to pay off without defaulting.
Majority of the student debt literature point toward institutional-based rather than individual-based solutions. After all, if the burden is to fall on individuals, then student loan debt is no different from any other debt.
Nevertheless, there are calculators available online that help individual borrowers estimate the time it will take them to repay loans. Here are some:
Source: Credit Summit
In 1958, the first student loan programs were instituted through the National Defense Education Act (NDEA). The U.S. Congress passed NDEA into law to aid the nation’s technological advancements. Russia’s launch of Sputnik a year prior especially prompted the decision.
In 1965, U.S. started offering need-based loans and grants to students through the Higher Education Act. This law authorized several student financial assistance programs, including Pell Grants, TEACH Grants, Federal Family Education Loan (FFEL) Program, and Direct Loan Program, among others.
Between 1980 and 1985, the Reagan administration cut the student aid budget by about 25%. With the decrease of state support, individuals needed to take on more of the burden of education costs. Many experts claim that the high cost of education in America today, and consequently the rise of student loans, can be traced back to this era.
During the Great Recession in 2008, people looked at college education as a way to build marketable skills. Both enrollment and tuition cost reached a new high then.
Today, the nation is facing another recession, brought about by the COVID-19 pandemic. Only this time, college has become more unaffordable and, not surprisingly, many people are questioning the benefits of college education.
In 2019, more than six out of 10 college students graduated with debt. They owed an average of $28,950, 56% higher than the average student loan debt of graduates in 2004.
The collective student debt of $1.6 trillion continues to rise and is projected to reach $2 trillion by 2024 and $3 trillion by 2038 (SavingforCollege.com).
Over 45 million or 20% of the American adult population carry student debt. Some argue that its being both a systemic failure and having negative consequences on the national level make it every American’s problem.
The discussion of indebtedness in relation to attaining a university education should not be financially abstracted; rather, it should be grounded on the social and economic realities from which it emerges (Feige & Yen, 2021).
Every systemic failure has its own intersectional impact. Here is a quick look:
Source: U.S. Department of Education
The approval rate for debt forgiveness has been historically low. Only 26% has been approved for Borrower Defense to Repayment, 2.1% for Public Service Loan Forgiveness, and 0.0008% for Income-Driven Repayment Forgiveness.
Last March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed by the U.S. Congress. It halted the collection of payments for student loans from March 30, 2020 to September 31, 2021. A coalition of 128 organizations submitted a letter urging the Biden administration to extend the student loan payment pause.
There are a lot of ongoing discussions on student debt cancellation. It is one of the many proposals for solving the student debt crisis. The Aspen Institute’s Expanding Prosperity Impact Collaborative listed 16 proposals sorted into the following categories:
Right now, the discussion is gearing toward the third option. Although many activists and supporters of borrowers are still pushing for the last one.
The Center for Law and Social Policy enumerated 10 reasons to cancel student debt. The list includes its significant intergenerational, anti-poverty effects and its potential to advance gender and racial equity.
The opposition contends that canceling student debt will benefit the wealthy and will not be fair to students who worked hard to pay their debts.
Having to take decades to pay student loan speaks a lot about American education being a costly privilege. The American society is deciding to put students financially at risk just to be able to acquire an education. A commentary dubbed college as “the riskiest expenditure numerous households will make” (Popescu, 2017). There is a lot of evidence that student debt derails the life of borrowers and affects them and their families in a negative way.
Clearly, society has to take a step toward solving the problem collectively, one that will be mutually beneficial to all parties.