Opinion: How to Solve the Student Loan Crisis
In the United States of America, there are currently 44.7 million Americans holding a collective $1.64 trillion in U.S. student loan debt. That’s an average of about $37,000 a person (studentloanhero). This amounts to more debt than any other non-housing debt category in the country.
Students, of course, take out loans to make up the difference in the cost of attending school that they and their families plus scholarships cannot afford to do themselves. Not all students need to take out loans, and many students are fortunate being able to walk across the stage and graduate without worrying about upcoming payments. Unfortunately, not every student can graduate this way today. There are many reasons why a student might have to take on debt. Oftentimes, we hear that the debt crisis is due to too many students going to college when they should not, going to expensive schools when cheaper schools were available, and obtaining degrees that do not show high salary prospects.
The truth is that there are students that go to college that should not, there are students that go to expensive schools when they know they will take on much more debt than attending a cheaper school, and there are students who get degrees that may not have been wise given that times job market. However, what about students who want to work in a field they are gifted in, and who go to the cheaper school, and do get degrees that open the door to high paying, abundant job prospects? These latter students make up a large portion of student loan borrowers.
This article will not dive into anecdotal references, but does aim to explain why we all need to start listening to borrowers and what needs to be done to help. It is fundamentally wrong that two students from two different economic backgrounds can graduate with the same degree, at the same school, and have the same resume, but one does not have any debt while the other has to put massive portions of salary towards paying down loan debt, delaying the ability to purchase a home, and be fully engaged in the economy. This is a simple, but sad, fact of what these loans do to borrowers. So the question is, how can the crisis be fixed?
The simple answer is interest. The government gives out student loans to help students stay enrolled, at relatively low interest. The current interest rates for a student in the 2019/2020 school year is 4.53% for a government loan. Government loans have fixed rates for all borrowers who are eligible, and are determined by Congress and the Department of Education. Private loan lenders give out loans to the same students who are still short by some amount to stay enrolled. These interest rates vary widely between borrowers since lenders can look at a borrower’s background to determine interest. Typically, it is normal to see these interest rates above 10%, 11%, and sometimes 12%. It is ironic that lower income background students have to pay such massive interest rates due to their risk before graduating. The same individual can graduate into a high paying profession where they are at the same time considered low risk borrowers and can buy new cars with zero interest.
Another issue with government loans is that as a borrower you are not allowed to refinance with the lender if you make more money than the cutoff the government sets. If you are under this threshold, you can pay as you earn, graduate payments, and more. For others, you are stuck with the minimum payments. Private loan borrowers are much stricter. Sallie Mae as an example does not allow refinancing at all by any borrower, regardless of post-graduation income. Of course, one could refinance with a third party, but all that does is move your debt from one place to another while the original issue is keeps taking place.
With that being said, this is my proposal to eliminate the student loan crisis:
Immediately allow all government student loan borrowers, regardless of income, to refinance with the government at zero to near zero interest rates. The government should arguably not have interest rates on student loans at all. If students only have to focus on the principle upon graduating, payment deferrals will drop, financial hardships would alleviate, borrowers would see an actual dent in their amount owed after each monthly payment, and the government will see much more tax revenue from that student borrower through their career if that career is made accessible, and the money the student is able to free up can go to buying other things.
Allow all payments made towards both interest and principle to be tax deductible (1098-E), instead of just interest, for both government-backed and private loans. This will lead to higher federal tax refunds for borrowers, which can be put towards student loan payments at more aggressive rates.
Pass the Student Loan Repayment Assistance Act (2019 H.R. 655). This bill would allow companies to not only continue helping active student-employees pay for school, but also apply help towards employees who have already graduated. This benefit would be an immediate game changer for company recruitment.
Expand the current public service loan forgiveness program to be for any future student loan borrower that works for any public agency or nonprofit. This program currently allows for borrowers to work for 10 years in the public service, making 120 monthly minimum payments, and having their remaining loans forgiven. However, many borrowers find difficulty applying this to their loans. Within this expansion, include new ways for students to give back to their country for loan forgiveness, such as a national service program.
Make a onetime inclusion for all current student loan borrowers in the country to enroll in a 120 month minimum payment program (Different from point 4). If borrowers had already made, say, 36 monthly payments, those would apply to the 120 overall. The remaining balance would be forgiven.
Strategically move taxpayer dollars, or raise certain taxes, to go towards public colleges, including community colleges, to try and bring down the cost of school in the first place. College has become much more expensive relative to other things in life, and needs to be curtailed.
Immediately fund a new national program that will educate all high school students on the cost of the real world. This program would teach high school students on the cost of college versus returns they would see, the prospect of entering a trade, joining the military, and more. Students would also learn about the cost of an apartment, what their future salaries could be based on a previously administered aptitude test, and more. It is imperative that students are taught the pros and cons of all career choices so they can make a good choice.
These ideas follow the principle that the government should be facilitating students in helping pay for college, not hindering them. What would you do to help solve the student loan crisis?
-Tyler, The National Watch