You may have heard the statistics already – student loan debt is now at $1 trillion, surpassing credit card debt! Ouch. I’ve overheard conversations and seen news articles posing the question: is this the next financial bubble to pop? Similar to Greenlining’s concerns and warnings of the foreclosure crisis in the mid-2000s, the student loan debt problem is something that we should be aware of and concerned about today for a number of reasons.
While there are several culprits affecting the intersection of economic mobility and college affordability, none are as serious as student loan debt. Average undergraduate loan debt stands at $27,000, with a monthly payment of around $300 for 10 years. A study from the New York Fed concluded that an economic recovery relies on people buying houses and cars, yet with a weak job market and student loan bills, how can young Americans even think about buying such things? At Greenlining, we have a program dedicated to Economic Equity looking at homeownership, which we believe is a way for communities of color to create wealth. In the wake of the foreclosure crisis and Great Recession, however, how can young Americans saddled with debt join this cycle of wealth creation? When will homeownership be within reach?
To make matters worse, there is no way to default on a student loan. They aren’t discharged into bankruptcy unlike mortgages, so even if students can’t pay the bill, this debt will follow them into old age, at which point the government will dock Social Security payments for outstanding balances. And if that’s not alarming to you, if the government fails to act by July 1st, rates on federally subsidized Stafford Loans (the good kind) will increase from 3.4 percent to 6.8 percent. Altogether, this could mean weak spending in the future, and in worst-case scenarios, an inescapable hole of debt.
So what can we do about this? Student loan debt is a convoluted issue, but there are short-term and long-term fixes floating around out there. Congresswoman Karen Bass introduced legislation known as the Student Loan Fairness Act, which would cap federal loans at the affordable rate of 3.4 percent, improve repayment options, and offer a path to loan forgiveness for eligible borrowers. The legislation can save students money in the short-term, and also promote spending and economic growth in the future.
That’s not all. The Consumer Financial Protection Bureau is encouraging universities and colleges to adopt a financial aid shopping sheet that would allow students to “know before they owe” so that they can make smart financial decisions. I recently attended the Alliance 2013 Summit hosted by Families in Schools, and learned of innovative, local-based strategies for asset building from EARN. Their TripleBoost Account is a model that can create a lasting culture of low-income families viewing higher education as a necessary asset, while simultaneously teaching practices that families can adopt for smart financial planning and saving.
The solutions above will not completely alleviate the ills associated with student loan debt, but they can do a lot to empower families and students to say “yes” to college rather than “maybe” or “no.” After all, as I strongly believe, an investment in education is not only an investment in our future and economic growth, but an investment in uplifting ourselves and our communities in the process – it’s an asset that can’t be taken away from you, once you have it. We’d all be better off if young people can pursue their dreams without being chained down by debt for the rest of their lives.