The Student Debt Crisis in America & What You Can Do About It.
For The Charter Editorial Board
Higher education has long been touted as a way out of unemployment, poverty, and into the modern world, but roughly forty percent of students are skipping college entirely, or enrolling in a trade school.
One major reason is the cost.
Institutions vary wildly in tuition, from less than $5,000 annually (University of Alaska Fairbanks), to almost $80,000 (Harvey Mudd college). On average, public, or state colleges (run by the state, funded by taxpayer money and tuition) are the cheapest.
Why do some schools cost more than others?
Simply put, different types of schools cost different amounts. There are several ‘classes’ of college, each operating on a different model.
Private colleges are non-profit organizations, but in addition to tuition rely on donations, or an endowment– a sum of money left to the college by a patron, or by the founder of the college. Many students in need of financial aid go to private schools, as these often have more resources to devote to grants and scholarships.
The final category of schools are for-profit schools. These schools are highly controversial, as the low federal oversight breeds scams and “diploma farming”- to the point where 98 percent of college fraud filings were related to for-profit institutions.
Some for-profit ‘universities’ aren’t accredited, meaning students don’t derive college credits from classes offered by the institution. In practice, this means that students have no guarantee of the quality of content provided.
One well-known example of a un-accredited university was Trump University LLC- which used high-pressure sales tactics to sell ‘retreats’ or ‘seminars’, for $35,000. The organization was crippled in 2010 by a 25 million dollar fraud lawsuit. According to Forbes, even the “legitimate” for-profit schools “credit for credit… cost about twice as much as public colleges.
From 1989 to 2016, the cost of a four-year degree more than doubled (Forbes), while the median income for those with degrees rose by a bare 0.3 percent.
The cost to attend a university increased eight times faster than wages did.
For students who can’t afford the higher tuition costs out of pocket, an alternative has long existed: student loans.
The US government first issued mass student loans in 1958, under the National Defense Education Act (NDEA), which was passed as a direct response to the Soviets pulling ahead in the space race. NDEA authorized the federal government to provide loans to students going into teaching and STEM-related fields.
The idea was to provide more mathematicians and engineers, and more teachers to educate even more mathematicians and engineers later on, to boost the space and defense programs.
These loans were regulated tightly, with caps on the amount students could take out, and interest was kept at three percent (now 5.05 percent).
The problem with student loans arises with privatization. In 1996, the Clinton Administration privatized student loans, releasing the ‘debt’ of students to proxy organizations.
Why Do Banks Want Debt?
If it seems a little weird that companies were willing to buy student debt from the US government, or that ‘debt’ is even a thing one can buy, we understand. We put it into 5 points, as simply as possible:
- When students take out loans from the government, they’re agreeing to pay that money back after a given length of time, and with interest charged to the student- money charged to the student for every year they don’t pay off the loan. So, if they take out 100 dollars, and agree to pay one percent simple interest for two years, they’ll have to pay 102 dollars, two years later.
- Before debt was privatized, the government would loan the student taxpayer dollars, get them back, (most of the time), and keep the interest for government use. It helped the student, and it helped the government, as the 100 dollars in taxpayer dollars was now 102, so another two dollars could go towards roads, the military, or helping more kids get through college.
- But, letting the 100 dollars sit with the students meant the government couldn’t use the money. The US was in debt itself (very, very deep in debt), and the government needed that money right away. So instead of taking 100 dollars in taxpayer money, they had banks, like Wells Fargo and JP Morgan, provide the money. (these banks are called ‘Loan Servicers’) So students now owed the banks, in our example 100 dollars + interest.
- Now there’s a problem: the way the government and the loan servicers makes money off of loans is interest. The government has set the interest for this loan at 2 percent, but that isn’t enough for the bank. The loan servicer can lend that money to someone buying a car, and get 5 percent interest, so lending to students means losing money. The government needs the servicers to loan students money, but the servicer has no reason to do it.
- So, the government promises the servicer, if the student can’t pay off the loan, the government will. This is called a guaranteed loan, and servicers love them, because there’s no way the servicer can lose: If the student pays the loan off, servicers win; if the government pays the loan off, servicers win. The government also lets the servicers loan students more money at higher interest rates. Sometimes, the servicer loans the students more money than the students can earn, and the students can’t pay the money off- meaning the government has to. The more money the servicer loans, the more interest it gets back- regardless of who pays.
So, students went from government controlled, low-interest loans with a cap, to bank-controlled, high interest loans where students could borrow much more than they could possibly pay back given the earning potential of their degree.
In 1993, shortly before the government began privatizing loans, 49 percent of students were taking out loans, with an average debt at graduation of $9,320.
By 2018, roughly 70 percent of students in four-year programs were taking out loans, graduating with an average debt of $29,800.
One might expect the government to fix this. They’re trying.
Both political parties have offered potential solutions as part of their platforms for the 2020 presidential race. In March of 2019, the Trump administration proposed caps on student loans. The administration cited a study linking increases in loan availability to increases in college tuition. (Sr 733, 2015) Critics of the plan argue that capping loans makes it harder for disadvantaged students to secure a quality education, and that these measures do nothing to reduce the actual cost.
The three democratic frontrunners have been more prolific, each outlining broad plans to change the student loan system, bringing it back closer to where it was under NDEA.
Senator Bernie Sanders outlined a plan that would include total forgiveness of the 1.47 trillion outstanding student debt, free public college, university, and trade school; and an expanded grant program. According to his campaign website, this program would be paid for by a tax on high-risk stock trading, estimated by the International Review for Applied Economics to raise 2.4 trillion by 2030.
Former Vice President Joe Biden and Senator Elizabeth Warren have both advocated broad education plans including sliding-scale student debt forgiveness policies based on income, with limited forgiveness capping out at $50,000 per borrower.
Although the plans proposed by these politicians include large-scale loan forgiveness, similar policies have often proved ineffective due to fraud and mismanagement. Public Service Loan Forgiveness (PLSF), a Bush-era law designed to grant civil servants student debt forgiveness, was rendered almost useless by the loan servicers, who denied borrowers access or delayed payments in an effort to render the borrowers unqualified for forgiveness. The law was designed to target one out of every four american workers. Ultimately, only 1000 qualified for forgiveness, according to CNBC.
It shouldn’t come as a surprise that students are jumping ship and skipping college- but that doesn’t mean life without a college degree is any better.
People seeking employment with only a highschool diploma are denied two thirds of jobs now available, and make 84 percent less over their careers than those with a four-year degree, according to a study conducted by the Georgetown University Center on Education and the Workforce (CEW), The College Payoff.
An increasing number of students are enrolling in a vocational program, or trade school. Although wages made by trade school graduates are, on average, higher than those with just a diploma, (CEW) the degrees granted by these institutions aren’t as versatile as those offered by a four year institution- for instance, an English major can find high-level work in education, journalism, and a variety of other fields. A degree in welding has a comparatively limited number of applications. Although trade school can be a great option for those who know exactly what they want to do, they aren’t a substitute for a college degree. It’s the difference between a screwdriver and a multitool.
Middle class highschool graduates are in a double-bind, a catch 22. If they go to college, they’ll often spend years working to get out from under student loans. If they skip college, they’ll close off their opportunity to pursue most higher-paying jobs, and confine themselves to earning only 16 percent of their potential income. The government is pursuing plans that may take several years to come into effect, by which time many more students, (roughly 3.5 million) will already have graduated highschool, and arrived at the current situation.
Even if Washington does pass broad education reforms, in the short term, it’s up to students to get a college education, and, if at all possible, stay debt free.
There is, however, some good news. Students can do this by taking advantage of the many incentives and programs designed to make paying for college easier. The most prominent of these is community college. This system has been called ‘America’s best kept secret’- an apt description for a very visible, but often undervalued institution. Community colleges are public colleges that offer a variety of two year programs, from trade certifications to associate’s degrees (the prerequisite to a bachelors, or four-year degree).
ACA has several robust programs that can ease students into a community college before they get their high school diploma, from which they can transfer into a four year school- the CCC program allows students to take one college course per term, paid for by the school, and the ACE program allows the students to attend community college full time with some oversight from the ACE coordinator, Mr. Wynne.
Certain scholarships and fellowships are also tax free, meaning students don’t pay income tax, when applied to tuition, fees, and books. Tax credits, or tax breaks, can also be applied to lighten the load on students– the American Opportunity Tax Credit (AOTC) is designed specifically for college students, and allows them to deduct up to $2500 dollars per year off their income taxes, for four years. Students can also apply for grants and scholarships- free money towards education based on financial need or academic merit.
The Charter has compiled resources on grants and scholarships, but interested students should also contact Jill Mohr, ACA’s college adviser. It’s all up to you.
Grants and Scholarships:
Grants are federal or state funds granted to students who meet certain requirements. Unlike loans, grants do not have to be paid back. For most federal grants, students must complete a FAFSA form. ACA’s former ACE program coordinator, Jill Mohr, recommends getting help with this from a college advisor, as this form determines eligibility for grants, scholarships, and other financial aid.
Oregon Promise is a grant available for recent high school graduates and those who have completed a GED, with a GPA higher than 2.5. Qualifying students can earn up to 3834 per year to put towards community college.
A Pell Grant is a federal grant program for low-income students enrolled in classes at any qualifying institution (no more than one at a time), through which students can receive a maximum of $5775 per year.
The Federal SMART Grants are aimed at Pell eligible third/fourth year undergraduate students who are Pell eligible, and are enrolled in qualifying fields (mostly STEM). As a side note, these grants are the grandchildren of the original NDEA program, as they aim to maintain a STEM-proficient workforce to keep the US competitive in the global economy.
While grants are often need-based, scholarships tend to be based on merit.There are so many scholarships available that it would be impossible to list them all here. Schools often have many of their own scholarships. The Charter has included several general databases of scholarships. An ES or an advisor is worth a visit when applying for these.
Oregon specific scholarships, by county.
OSAC scholarship catalog, allows narrowing by location and school.
Peterson’s, an entire scholarship search engine with other tools for applying.
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