The NYU Dispatch

Cleaning up the student loan crisis

For years now, the student loan crisis has become a cause for serious concern in the American economy. With the total borrowings pegged at close to 1.3 trillion dollars, it is the highest consumer debt category in the country. Only mortgage debt stands higher, as it has comfortably surpassed both credit cards and auto loans in terms of size.

With the cost of college education showing no signs of receding, all signs point to the fact that the number of borrowers, currently estimated at around 44 million, is only set to grow.

There is a growing voice urging students to show some amount of caution when it comes to taking on student loans. Like any financial decision, it is always wise to be aware of the facts and follow a few best practices. Still, more and more people find themselves stuck with loans that they struggle with for large parts of their lives. Once in a while we come across shocking stories where the loan company goes out of their way to make life difficult for the students but a larger look at the issue reveals a more systemic problem.

The large-scale issue stems from some deep rooted socio economic questions. Should students be treated like any other borrowers in financial terms or do they merit special benefits because education is considered a public good?

When we peel back the layers it becomes apparent that the ones at risk are not the borrowers with the largest debt. It is the low income students, first generation college goers and students of colour, most likely attending less prestigious schools. Even if they graduate, they are less likely to earn enough to service heir hefty loans.

“There are populations who are borrowing to go to college or ending up without a degree, and ending up with meaningless degrees, and are … worse off than if they had never gone to college to begin with,” Amy Laitinen, of the nonpartisan thinktank New America said, describing the cycle of debt theses students get caught in.

As awareness of this crisis spread, there was a need to address the issue. A wave of public outcry led to a push towards the federal government taking steps to forgive student debt. It was primarily a government led initiative, but the support began to trickle in from other sources as well. Private funds were set up to aid students with large debts and even prominent celebrities lent their resources to the cause.

This movement however has seen its share of opposition. A lot of the work done in this direction has come under threat with legislators taking a stance against government aid to bail out those with the debt.

With anger mounting towards the state of debt, not many solutions are coming through. A few stray examples aside, a very large portion of the recipients of student loans are buckling under the pressure to repay them.

Some of them have been lucky enough to find some solace in student loan refinance programs but this is, in no way is a solution to the bigger problem, looming large. It is extremely troubling for a country’s economy when its educated, capable and most qualified workforce finds itself crippled financially.

It is absolutely clear that the problematic state of affairs stems from an institutional problem in the education system. There are a few factors to consider. The disproportionately high cost of higher education is one of the biggest factors contributing to the crisis. With for profit universities taking over a larger share in the market, there is little legal restriction on the cap, when comes to setting a price for higher education. Even institutions that are not as highly regarded, seem to be able to get away with charging a steep fee. Another factor in the recent past is the economic downturn. The economy is simply not capable of accommodating enough high paying jobs for the ever growing number of college graduates the system is throwing up. The supply is constantly outweighing the demand. Of course, it is also time the structure of the loans themselves came under scrutiny.

Together all these factors have created the perfect storm when it comes to a financial crisis. One can not keep blaming it on the individual students that find themselves struggling to carry the burden of their debt, often throughout their professional career, sometimes even after.

Outside of the obvious downside of a massive debt building in an economy, that is becoming almost impossible for its borrowers to service, there are more pressing issues. An ailing and unhealthy workforce is never a productive one. Ailment is not always physical. If a large chunk of a country’s workforce is struggling with its financial health, it has to be addressed. The solutions do seem like they are complicated, however if ignored, the threats to the economic well being of the state will only grow until they lead to a larger crisis. One that might need even more drastic measures to address.

This article was contributed by fellow NYU students. If you would like to make a contribution to the NYU Dispatch, please email us.

2 thoughts on “Cleaning up the student loan crisis”

  1. Even better would be a system of payroll withholding, like those in England and Australia, where loan payments automatically fluctuate with earnings. Some people oppose this approach, arguing that payroll deduction elevates student loans over food and rent as payment priorities. But this misses the strongest protection of payroll withholding: It automatically cuts payments to zero when earnings drop low enough, putting loans at the bottom of the payment hierarchy.

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