Student Loan Debt is a Serious Threat

     Apparently, there will not be an early bipartisan solution to the ongoing student loan crisis in America, despite the broad impact of the problem and the potential danger to the overall economy if the problem is not soon resolved. The outstanding student loan debt in America has reached $1.6 trillion and affects over 44 million individuals, primarily students, but also parents.

     Student loan debt exceeds both credit card debt and auto loan debt. Only home mortgage debt is higher. 

     How did we get to the point where protecting broad access to postsecondary education is not recognized as societal obligation, critical to our economic and political well-being.?

     When I graduated from Wofford College in 1959 I owed about $1,000 to the Darlington (SC) Kiwanis Club college loan fund. I had dropped out for the last semester of what was to be my junior year in order to go to work and pay off an earlier loan from the Kiwanis, but I had to borrow more so I could complete my degree.

     Borrowing money for part of the cost of my education was an inconvenience, but not stressful. I paid off my loan within three years, and never questioned the value of my investment.

     The world of higher education in America is a little different today.     

     First of all it is clearly more expensive. Today, the annual costs at a private liberal arts college like Wofford can range from $50,000 to $75,000.

     Even public institutions today carry a hefty price tag.  In South Carolina the yearly cost among public campuses ranges from approximately $20,000 to nearly $30,000 for in-state students. Out-of-state students can pay as much as $20,000 more.  North Carolina’s public institutions are only slightly cheaper.

     With today’s costs it’s obvious few service clubs or fraternal organizations can offer the kind of financial assistance the Darlington Kiwanis Club provided me. A couple thousand dollars in the 1950s was generous and covered about half the cost of my college education. Managing loans that could easily exceed $100,000 would not be feasible for most volunteer organizations today even if they could raise the necessary endowment.

     To help offset at least part of the cost of attendance today, some institutions attempt to use their own resources, private endowments, and access to various federal grant and loan programs. But keep in mind, the median annual family income in America today is $61,000. Half the families in America have no greater income. What is the likely reaction among students from such families to the stories about the current student debt crisis?

     This crisis did not developed in some mysterious manner.  It came about because politicians over the past three or four decades have viewed education as a benefit for the individual rather than as a public good broadly of value to our entire society. This has led states to reduce funding for traditional colleges and universities and forced the institutions to raise tuition and fees imposed on students.

     The change in attitude as to the purpose of education has led to a plethora of for-profit colleges that advertise easy access to lucrative jobs. According to The Economist, between 2000 and 2010 enrollments in for-profit college chains more than quadrupled. Nearly a quarter of their revenue went to marketing, “more than on educating students.”  

     Fewer than a quarter of students at for-profit institutions complete their program, but virtually all wind up with debt. For-profit college borrowers have a default rate of 48% within 12 years, compared to 12% default rate for public college borrowers, and 14% of private college borrowers.

     Billionaire Robert Smith’s recent promise to repay the student loan debt of the 396 men in the 2019 graduating class at Morehouse College was a generous gesture. Unlike nearly two-thirds of their fellow college graduates this year, Morehouse men will not have the burden of approximately $30,000 to shoulder as they embark upon their careers.

     There is, however, little evidence that other wealthy individuals are similarly motivated.  Also, Smith’s commitment does nothing for students who have not graduated or who have transferred to other institutions.

     A proposal to provide tax credits to graduates and their employers for repayment of student loans suffers from the same flaw.

     Since 2004, student loan debt has more than quadrupled which indicates the problem is of recent origin. Continuation of this burden will have a long lasting effect. At least three generations of Americans already face serious restrictions on their participation in our economy. Buying a house, marrying and raising a family, or entering critically important professions, like K-12 education, healthcare or social work, all are impacted.

     Surely, if we can find the means to give a 40% tax break to corporations, we can find a way to eliminate the current student loan debt and to create a more rational system for funding colleges and universities. Until recently, American postsecondary education has been the envy of the rest of the world.  It is not too late to restore that acclaim.