I remember the day I graduated from high school as if it was yesterday; it had been more than thirty-five years. I am an immigrant from El Salvador; my family didn’t have any money to contribute to my college education, and I was the first in the family to have college aspirations. I faced several challenges that seemed insurmountable, including the funding of my education. I opted for the local community college and continued with my life. I formed a family, had a daughter, and bought a house. I took my daughter with me to my night classes; she took her own homework and sat quietly working on her elementary education as I worked on my higher education. Eventually, I received a letter from the community college recommending that I transfer to a four-year college or university; I had completed the equivalent of two years’ worth of credits of the atypical four-year program. I was out with some education, no degree, and no debt.
As a young adult in the world, I was the studious type, had an excellent academic record, and had excellent computer skills. I entered the job market and proved myself. Over time, completing my college degree became a must. I took the plunge, signed up with the local private, non-profit university, and signed the dotted line for the student loans. By the time I graduated with a bachelor’s degree, I was forty, had $20,000 in student debt, a daughter in high school, a mortgage payment, and the responsibilities of a single head household.
Today, young adults and all types of adults face similar decision-making about how to finance a college education. Young and older adults realize that higher education or skill-building beyond high school is necessary to be successful in the labor market. They make rational decisions about signing up for a college degree or certificate programs. But like a mortgage loan, it is very difficult for prospective students to assess the quality and value of the various types of colleges, universities, and educational programs, certificates, and student loans. I have yet to meet a prospective higher education student who understands the results of a free application for their education with loans.
A scan of the news headlines reflects that a high proportion of adults are student debt-burdened and that these people are making life choices to cope with their debt that distinguishes them from previous generations. The latest quarterly report by the Federal Reserve Bank of New York shows that the outstanding student debt stands at nearly $1.5 trillion and almost 11% of it was 90+ days delinquent or in default. Student debt is the second-largest liability on household balance sheets after mortgages and slightly over auto loans. It is important to point out that student delinquency has been on the rise since the first quarter of 2003, with temporary dips.
The significance of this debt is to what extent it influences behavior that impacts credit markets and the overall economy. Many analysts argue that people burdened with student debt postpone other decisions that in the aggregate impact various sectors of the national economy. Are young adults getting married, having children, buying homes, cars, saving for retirement, and making other decisions comparable to previous generations? Are older generations losing ground today due to their own student debt or debt to finance their children’s or grandchildren’s college education? What solutions should be explored, given that our national economy depends on people’s capacity to consume?
The Center for Responsible Lending (CRL), in a recent report on the student debt crisis, maintains that the national trends show that our nation has divested from postsecondary education; that access to it has been historically unequal; and that African American and Latino students continue to struggle to finance their college education. CRL recommends reforms that could mean much-needed relief for many consumers, especially people of color.
CRL wants to see improvement in the income-driven repayment options, reduced interest rates on the student loans, make hardship bankruptcy available to those who need it, make broad debt cancellation available, strengthen servicing standards and oversight, prevent abuses by for-profit institutions, and make college accessible for ordinary Americans. Personally, I recommend an ERISA-type plan that would make employer-based contributions to student debt repayment based on job educational requirements and desirability. In other words, if the job requires or desires a bachelor’s, law medical, etc. degree, then the employer should offer student debt repayment benefits similar to continuing educational benefits.
CRL has calculated that half of the borrowers who default on their students owe less than $10,000. Even with such low outstanding balances, the cost of default is high as people’s marred credit profiles make them eligible only for more expensive credit going forward, if at all. CRL’s debt cancellation proposal is modest but it would put a significant dent on the overall student debt burden of those who most need it, $10,000 across the board in federal student debt relief. CRL estimates that about forty percent of borrowers in repayment would experience complete debt cancellation; these borrowers also have low incomes.
Those who experience debt relief would be able to move on with their financial lives, improve their credit, and engage fully in and stimulate the economy. Will they be able to buy a house? I don’t know but we have an obligation to the student debt burden problem, not to the dearth of affordable housing stock or lack of affordable mortgage loan problems.
