The Struggle of Student Loan Borrowers in America

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"Give a man an education and he will build a new world, but give a man a loan and you can own that man forever." - Unknown

Introduction

Student loans are a common way for many Americans to finance their higher education. According to the Federal Student Aid website, there are four types of federal student loans available: 

  1. Direct Subsidized Loans,
  2. Direct Unsubsidized Loans, 
  3. Direct PLUS Loans, and 
  4. Direct Consolidation Loans. 
However, these loans come with interest rates, repayment terms, and eligibility requirements that can make them difficult to manage and repay.

Challenges

1. One of the main challenges that student loan borrowers face is the high amount of debt they accumulate over time. The average student loan debt for the class of 2020 was $37,693, according to a report by EducationData.org. This amount varies depending on the type of degree, the type of school, and the state of residence. For example, borrowers who pursued graduate or professional degrees had an average debt of $71,000, while borrowers who attended private nonprofit schools had an average debt of $39,950. Borrowers who lived in states like Connecticut, Pennsylvania, and Rhode Island had an average debt of over $40,000.

2. Another challenge that student loan borrowers face is the difficulty of qualifying for forgiveness or discharge programs. The federal government offers several options for borrowers who work in public service, teach in low-income schools, or experience economic hardship or disability. However, these programs have strict criteria and complex application processes that can discourage or exclude many borrowers. 
  • For example, the Public Service Loan Forgiveness (PSLF) program requires borrowers to make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. According to a report by Forbes, only 2% of PSLF applicants have been approved for forgiveness as of July 2023.
3. A third challenge that student loan borrowers face is the impact of student debt on their financial well-being and future goals. Student debt can affect borrowers' credit scores, savings, investments, homeownership, retirement, and family formation. A report by Forbes showed that Parent PLUS loans, which are federal loans for parents of undergraduate students, have caused significant harm to Black families in terms of wealth accumulation and intergenerational mobility. Moreover, student debt can also affect borrowers' mental health and happiness. A survey by Student Loan Planner found that 65% of respondents reported experiencing anxiety due to their student loans, while 20% reported experiencing depression.

What can be done?
The student loan issue is a complex and multifaceted problem that affects millions of Americans and the economy as a whole. There is no single or easy solution, but some possible ideas include:

  1. Forgiving some or all of the existing student debt, especially for borrowers who work in public service, teach in low-income schools, or experience economic hardship or disability. This could provide immediate relief and boost consumer spending, but it would also be costly and may not address the root causes of the debt crisis
  2. Streamlining and simplifying the existing forgiveness and repayment programs, such as income-driven repayment plans and Public Service Loan Forgiveness. This could make it easier for borrowers to access and benefit from these options, but it would also require better oversight and enforcement of the lenders and servicers
  3. Reforming the bankruptcy laws and regulations to allow borrowers to discharge their student debt in bankruptcy under reasonable circumstances. This could give borrowers a last resort option if they face financial difficulties or unexpected life events that prevent them from repaying their loans, but it would also have implications for the credit market and the federal budget
  4. Improving financial education and empowerment for borrowers to help them understand their options and rights as student loan borrowers. This could help borrowers make informed decisions about borrowing, repaying, and seeking help from reputable sources and organizations, but it would also require more investment and coordination from the federal government and other stakeholder
  5. Expanding and improving access to affordable higher education, such as by increasing federal and state funding for public colleges, providing more grants and scholarships for low-income students, or creating more pathways for alternative credentials. This could reduce the need for borrowing and increase the return on investment for education, but it would also pose challenges for quality assurance and equity
References

  1. Forbes. (2021, November 13). The student loan crisis is worse than you think. https://www.forbes.com/sites/zackfriedman/2021/11/13/the-student-loan-crisis-is-worse-than-you-think/
  2. NerdWallet. (2023, January 20). What would it take to solve the student debt crisis? https://www.nerdwallet.com/article/loans/student-loans/what-would-it-take-to-solve-the-student-debt-crisis
  3. Harvard Business Review. (2019, September 23). What will it take to solve the student loan crisis? https://hbr.org/2019/09/what-will-it-take-to-solve-the-student-loan-crisis
  4. Saving for College. (2019, November 22). The solution to the student loan problem. https://www.savingforcollege.com/article/the-solution-to-the-student-loan-problem
  5. The Balance. (2021, August 18). Student loan debt crisis breakdown. https://www.thebalancemoney.com/student-loan-debt-crisis-breakdown-4171739
  6. The Washington Post. (2015, April 24). Federal solutions to our student loan problem. https://www.washingtonpost.com/opinions/federal-solutions-to-our-student-loan-problem/2015/04/23/a9ab9f6c-e69a-11e4-9767-6276fc9b0ada_story.html

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