Student Loan Debt Issue In The Past And Today
One of the biggest decisions high school seniors have to make is whether to continue their academic careers and go off to college. Deciding where to go will certainly have an impact on the student’s life. In most cases, one of the biggest deciding factors is how much their interested university costs. Due to this considerable information, student loans were created to make the students decision process less difficult. In today’s society, it is expected of high school graduates to peruse a higher education.
However, the issue here is that college tuition is at an all time high and students are having trouble paying for it. They are then forced to inquire debt in the form of student loans to be able to afford it. In addition, most of these people do not even realize the terms and conditions of these loans let alone the interest rate. At private Universities the average cost tuition and fees in the 2018-2019 school year was over $50,000. And at public 4 year universities the cost of tuition and fees for out of states students was $49,000 while in state students paid over $15,000. These numbers do not include room and board or other expenses like books, transportation and the personal technology that is increasingly required to keep up with all of the work. When taken account for these other expenses the final numbers can be truly staggering. How do American student pay for all this? Most rely on scholarships, grants and loans to cover their costs. A scholarship is the only form of aid that does not need to be repaid; grants sometimes do, while loans always need to be repaid. The root of the problem can be dated back decades ago, but this issue is a rather complex problem that needs to be solved.
According to Forbes magazine, there are about 45 million borrowers who collectively inquire a student loan debt of a whopping $ 1. 5 trillion. To put that into perspective that is the equivalent of 1500 groups of billions. That is the second highest consumer debt category; mortgage debt takes the cake ranking as the number one highest consumer debt. According to the Institute for College Access and Success, the graduating class of 2017 on average owed $28,650 in student loans. The numbers are overwhelming, but how did our society get to this point? The answer is twofold, the U. S government and private lending companies have made accruing student loan debt very easy and the cost of higher education has risen enormously in recent years. A situation related to many factors not the least of which is the availability of student loans.
The evolution of student loan debt can be thought of as a series of snowballing messes. The first mess began because of World War Two. The government wanted to ensure that more Americans had access to higher education and to also to prevent them from overloading a labor market that might not have room for them. In 1994, the GI bill offered benefits for veterans including loans to help purchase homes, farms and businesses. It also sent payment directly to the school up until 1952 to cover tuition and fees, books costs and room and board and it gave veterans a living allowance. 7. 8 million Veterans received educational benefits from this program. Sadly, around one third of the money in the educational part of the GI bill was wasted on fictional institutions and job training frauds.
Instead of turning their eyes to the bottom line, the US government turned their eyes and educational ambition to the stars. After the soviets launched sputnik and threatened to dominate the space race, the federal government passed the National Defense Education Act of 1958. This was the first large scale federal student loan program for the higher education in the US. The bill stated it wanted men and woman to receive a higher education to defend the nation during the cold war. Here is how the first loans distributed under this program worked. The federal government made money available to colleges; colleges would then match at least $1 for every $9 that the government provided. The students could then borrow this money as a loan to cover costs. In 1965, the higher education act added scholarships and work-study programs into the mix. More students than ever had access to loans which meant more people had access to higher education.
However, here is the catch, the cost of higher education was not only raising it was also outstripping the rate of inflation or the rate at which prices change from one year to the next. Here is an example of how inflation is supposed to work. Imagine that tuition and fees for a given school are $30,000 and a cost of a trip to the grocery store is $100. If inflation were, say, 2% the same groceries would cost $102 and the tuition and fees would cost $30,600 if they rose at the same rate. However, in reality tuition and fees were rising at a much higher speed than inflation. Colleges started implementing huge changes to attract and keep student because they were more statistically likely to graduate and land high paying careers and repay their debts with interest. This involved renovations to the infrastructure in order to increase their appearances and justify the soaring costs. Most of these schools were for profit and treated the student as a customer and they were willing to pay for these higher fees for the lofty experience that college had to offer. As a result, schools began taking in more people who were more likely to drop out school causing a spike in student loan defaults. One response to these defaults was the creation of the Student Loan Marketing Association also known as Sallie Mae.
Sallie Mae is an entity mandated to manage student loans. Here is how it works, a bank lends student money, and the bank sells this loan to Sallie may enable that bank to relend the money to a new customer. Sallie Mae then issues a government guaranteed debt on the loan which means if the loan is ever defaulted on the taxpayers would be responsible for the completion of repayment. This made giving student loans a very safe investment for Sallie Mae. Which would make sense because who in their right mind would lend an 18-year-old high school graduate a large sum of money without guaranteeing it? Therefore, the underlying problem here is the government itself. Fast-forward to today the student loan debt according to the Federal Reserve Bank of New York is $1. 5 trillion. They also report that the outstanding student loan debt rose by $20 billion in 2019. Sallie Mae is responsible for issuing about $5billion to over 374,000 borrowers to which Sallie Mae took 100 of its employees to Hawaii to celebrate a record year of lending by adding $5 billion to the student loan crisis as NBC news reports. This is morally incorrect, while borrowers are trying to figure out how to pay off a combined $1. 5 trillion student loan crisis Sallie Mae employs are trying to figure out how to spend their 5 day paid vacation in Hawaii. Many Americans are putting off starting families and buying homes because they have a student loan payment due at the end of the month. What are the possible solutions to this epidemic? One option is to create an incentive for employers who contribute to student loans by offering tax benefits.
Large employers are always trying to get out of not paying taxes so this is a good way to relive the student loan crisis. Everyone is always praising capitalism and how affective it is. Why doesn’t the government stop guaranteeing the loans that are being given out, so that students would not have access to that much money? People would then not go to these expensive schools that cost 50, 60, 70 thousand per year, which in turn would force the institution to lower their price and create competition among universities. This is the only viable way to reduce the student loan crisis and drive college tuition and fees down. As long as the government continues to guarantee student loans, the $1. 5 trillion will soon turn into $3 trillion by the end of the next decade according to Harvard business review. At the end of the day, the pointing of fingers should be towards the government. They are the ones who created this problem and sadly, they are the only ones who can fix it.
