Severity of the Student Loan Crisis
If the sky is the limit, then student loans are the hurricanes of the current generation: a destructive force preventing the nation’s youth from reaching their true potential. Over the recent decades, the student debt crisis has ballooned into an immense issue that can no longer be pushed aside; at $1.4 trillion, student loans have become the second largest source of household debt. In the midst of the COVID-19 pandemic, unemployment claims are at an all-time high, and many are struggling to make student loan payments. Furthermore, President Trump recently vetoed a bill that would have overturned a rule that restricted “student loan forgiveness for students when a college closes due to fraud”. The growing barriers preventing Americans from paying off their education highlights the need for government intervention in order to prevent overwhelming debt from limiting their future. The government must take decisive action to address this crisis, including providing scholarships and encouraging financial education rather than eliminating loans altogether.
Crippling Effect of Debt
The overwhelming burden of debt cripples not only the students who carry them, but also the nation’s economy. According to Klaauw of New York Fed’s research and statistics group, those with student loans “have worse credit scores” and are “more likely to be living with their parents”. In fact, the Consumer Financial Protection Bureau revealed an increase of 4.7 million Americans ages 25 to 34 living with parents from 2007 to 2011. Additionally, the desire to avoid being stuck in debt could result in students opting out of higher education as a third of Millennials have reported regretting attending college: a step backwards from efforts to increase education accessibility. In order to ensure that future generations are able to become educated, independent members of society, the burden that comes with higher education must be severely reduced or eliminated.
Potential Repercussions of Loan Forgiveness
Some plans proposed by politicians, such as ex-presidential candidates Bernie Sanders and Elizabeth Warren, would cancel the student loans of all borrowers or reduce them for a significant portion of Americans. They argue that the mass cancellation of debt would stimulate the economy. While research supports this claim, experts have expressed their concern that nationwide initiatives to cancel student loans could actually widen America’s wealth gap. Critics of mass debt forgiveness plans note that the largest student loans belong to graduate students, which will cause policies to primarily benefit the most privileged Americans. According to a 2015 study, plans to cancel student loans for all students would widen the wealth gap between white and black households. Nevertheless, progressive proposals to lower loans in low income households would significantly reduce the gap; for example, eliminating debt for those earning under $25,000 would “reduce the Black-white wealth gap by over 50 percent”. By crafting legislation that prioritizes underserved students, those most limited by debt will receive much needed aid.
To address such a complex problem, a multi-step approach is needed to aid students in paying off debts. The first step is for governments to open up more pathways to scholarships for high school students. The National Merit Scholarship is a great example of a program that helps students receive funding for their education, but more merit based scholarship should be made available on a local basis. This is not merely limited to academic achievement, but also in areas such as art, athletics, and writing. Furthermore, grants should also be given to graduating students for their achievements during college to help them pay existing loans.
Solution: Financial Education
Additionally, resources on student loans should be offered to high school and college students. Students should be educated on the financial factors of their education along with the academic aspect. A study done by Cengage, an educational services company, used a combination of surveys and public data from the Student Opportunity Index to find that recent grads estimated their debts would be paid off in six years. However, the Department of Education found the number closer to twenty years. Providing critical information would help reduce misconceptions among students. For example, holding free consultation workshops on paying off loans is a great step towards debt awareness.
The student loan issue affects young people of all walks of life and ignoring the gravity of the situation will only result in detrimental effects on the economy. Providing scholarships and financial education are merely the first steps to lowering debt among college graduates. In order to ensure future generations are able to access a higher education, policymakers must put this issue at the forefront of their agenda and work towards creating comprehensive solutions.