The numbers are staggering: Over $1.3 trillion in outstanding student loan debt, 40 million borrowers, and an average balance of $35,400. It’s not hard to find indications that student debt is a large, and continuously growing, problem. Mounting student loan debt is ricocheting through the United States, now affecting institutions and economic patterns that have been at the core of America’s very might.
While data shows that college graduates fare far better financially than those with just a high school diploma, those who are saddled with massive student debt, just getting by can be a challenge, much less getting ahead.
There are several causes for the rapid increase in levels of student debt. For one, despite the growing costs, Americans believe deeply in the importance of higher education. A 2015 survey of parents released by Discover Student Loans found that 95% believe college is somewhat or very important to their child’s future. They have reason- in 2012, full-time workers with bachelor’s degrees earned 60% more than workers with just a high school diploma.
Policymakers also encourage college attendance. In a speech earlier this year, President Obama called higher education “one of the crown jewels of this country” and said it was “the single most important way to get ahead.”
The confluence of these trends has led to a nearly unbroken increase in college attendance for almost 30 years. At the same time, though, the cost of college has risen for decades, far outstripping inflation. Average tuition, fees, and room and board at a private, non-profit, four-year college were $42,419 for 2014-2015, up from $30,664 in real dollars in 2000-01. At public, four-year schools, costs for the 2014-15 school year, at $18,943, were up sharply from the $11,635 price tag in 2000-01, according to the College Board.
The federal government has stepped up its lending accordingly, and so have private student lenders. The total of private student loans outstanding grew rapidly from $55.9 billion in 2005 to $140.2 billion in 2011.
Rising student debt levels are changing how millions of people approach major milestones and core financial decisions, affecting longstanding social and economic patterns. For example, home ownership has plummeted among Americans under age 35, from 43.3% in the first quarter of 2005 to 34.6% in first quarter of 2015, according to the Census Bureau. The National Association of Realtors found in a recent survey that 23% of first-time buyers said it was hard for them to save for a down payment, and within that group, 57% said student debt was impeding their saving, up from 54% a year earlier.
Students laboring under the burden of student debt are also following different career paths, with significant social implications. The need to repay loans is steering some away from professions like social work and health care and toward higher-paying jobs in tech and financial services. While choosing a higher-paying field may help them repay their loans faster, it could also result in fewer graduates moving into low-paying but critical jobs like early childhood education.
Fortunately, policymakers and academics are trying to develop solutions to the burgeoning student debt burden. The Obama administration has expanded the Income-Based Repayment program, which enables students to make loan payments that are no more than a reasonable share of their discretionary income — generally 10% — over a longer period of time.
Qualifying borrowers who work full-time in public service jobs may also get some of the balance of their loans forgiven through the Public Service Loan Forgiveness Program. Further, some states offer Children’s Savings Accounts, which enable families and donors to put away money for children’s college education
These efforts should certainly help to alleviate the burden on borrowers. But absent dramatic changes in the financing of higher education, or the development of additional innovative solutions to funding the rising cost of higher education, student loan debt is expected to keep climbing, and that could have implications for us all.