Read this if you’re ready to defy the expectations of the student loan debt narrative. Let’s build your #debtfreedream and secure it for future borrowers. Estimated read time 10 minutes.
The Problem
Student loan debt in America is a staggering $1.4 trillion strong. Student loan debt is second only to mortgage debt and easily outpaces other consumer debt like credit card debt and auto loans.
Over 42 million borrowers have student loan debt and about 10% of those borrowers have defaulted on their student loans because they’re struggling to repay that debt. Replace the faces of hopeful young adults seeking opportunity through education, unsure if their wages will be garnished, desperate to escape debt and falling victim to loan forgiveness scams.
Whoever started it, it doesn’t matter. Because, after today, you are going to be a part of the solution.
We’ve got a problem with funding
Public post-secondary learning is funded both by the federal government as well as state governments. Historically (from 1987-2012), states contributed about 65% more funding than federal government. In the wake of The Great Recession, state spending on higher education has been cut sharply while federal money (primarily in the form of Pell Grants) has steadily increased.
In 2013, federal spending on major higher education programs totaled $75.6 billion and state spending amounted to $72.7 billion.
Here’s an example from my state; Wisconsin’s per-student funding is 25% below 2008 levels and tuition has increased $1,485. If you want to know how your state stacks up you can find out.
I pulled the above statistics from The Center on Budget and Policy Priorities. They have links to each state (minus the three who increased funding) so you can examine the change in higher education funding in your state. I encourage you to check out your state’s funding at http://www.cbpp.org/research/state-by-state-fact-sheets-higher-education-cuts-jeopardize-students-and-states-economic
You may think it doesn’t matter where the money comes from as long as the money comes. The thing is, funding sources matter a lot. Over 70% of state funding is used for general appropriations, giving colleges flexibility in spending. On the other hand, the increased supply of Federal funding is primarily due to Pell Grants. That means colleges increase tuition to cover the loss of state funding and supplement their operation.
We need multifaceted solutions
Solving this problem is going to require many different solutions. Because the problem has a multitude of moving parts and is widespread one individual solution won’t fix it. For example, let’s say we funded public education fully. The future would look great, but today’s borrowers would still be stuck with their student loan debt and likely a higher tax bill to pay for those currently going through the system.
It’s a noble option but without careful planning it could worsen the student loan debt burden for those currently repaying.
We need to develop solutions within each industry that are unique yet complementary. Solutions that don’t replicate work and overlap dollars but produce synergistic results with their combined efforts.
Colleges
One of the lowest cost solutions colleges can implement right now is to promote transparent outcome-driven data. Decreasing cost is only one side of the equation. Increasing the value of an education also gives students a better financial outcome.
Colleges need to collect and report three major outcomes by degree program: median student loan debt, job placement rate, Median starting, 5 year, and 10 year salaries.
These outcomes give potential students the information they need to analyze the financial impact of their education. Right now most decisions are being made without this information. So the decision about how to spend 4-8 years of your life and tens of thousands of dollars is often based on an educated guess rather than real data.
Easily accessible outcomes data allows buyers in the market to purchase supply from colleges that meet their financial needs. Outcomes data also encourages colleges to eliminate non-profitable degrees that fail to attract borrowers.
Government
The government can make policy changes that massively impact the student loan debt problem. Here are a few examples.
Mandatory tuition freezes for institutions eligible for federal funding. The idea is that an institution would freeze a student’s tuition for the duration of their education (within reason). Freezing tuition allows a borrower to know ahead of times the total cost of their education rather than having to guess about tuition hikes. This could have the negative consequence of colleges charging much more than they need up front to account for future needs while unable to hike tuition.
The government could provide fixed low-interest rate student loans specifically for tuition and fees. Federal loans aren’t based on credit-worthiness and this would likely cost the government money. However, by limiting this to only the cost of tuition and fees the government could reduce the risk of excessive borrowing.
A low fixed interest rate will also provide a little more cushion from the disastrous impact of compounding interest, keeping interest from being a significant contributor to a borrower’s debt load.
Stop cutting state-level funding for higher education. Education represents the third highest spending category for states, behind elementary and secondary education and Medicaid. That means cuts to this spending save states big in the short term. In the long term, when colleges hike tuition in response to budget cuts, the cost of the budget savings gets moved onto the shoulders of students and the future work force.
This is something we can all demand of our state legislators. We can access them at our State Capitols, tweet them, stop in their local offices when they’re out of session. Tell them our concerns and give them a horse in the race. State legislation can be driven effectively by grassroots movements. Your legislators need to know how you expect them to allocate state funding.
Employers
Employers benefit from the education of their workforce. Many of them know it and are willing to pay for that benefit. However, we can continue to encourage employer engagement in solving the student loan debt problem.
Offer employer-sponsored student loan repayment as a benefit. Some fields require college education (much of healthcare, engineering, teaching) so it makes sense that the employer will offer a benefit that will target many employees. The idea is to create a match for student loan payments, similar to a retirement account.
This isn’t a tax deductible benefit yet, but if enough employers seek to offer it as a benefit and demand policy change to accommodate it, this benefit can join the tax deductible benefits of health insurance and retirement contributions. Making this a pre-tax benefit would give this solution maximum reach.
You are the necessary catalyst
The last set of stakeholders we need to solve the problem are borrowers. That’s you and me. The people in the thick of things, repaying their debt, dealing with the financial consequences, and striving for a better future.
You can start by figuring out the best solution for your own debt. You’ve really got three options to choose from:
Refinancing, best for high earners with, good cash flow, reliable employment, excellent credit, and job security.
Loan Forgiveness, best for borrowers unable to afford their current debt and willing to wait a while to see it disappear.
Optimizing your Repayment Plan, best for borrowers who need flexibility and don’t want to give up federal benefits.
I’m always here to help you make that choice so feel free to send me an email jeni@repayable.org and I’ll get back to you. I respond to every email I get.
Once you understand your own debt it’s time for you to help others understand theirs. Teach your co-workers, your classmates, your students how to approach student loan debt.
It starts today, when you claim the power of your education and find smart strategies for your debt. Today you work with other repayers to engage stakeholders and command their participation in solutions. Today we relentlessly chip away at the cost of college. Today we boldly apply the assets of our education to overcoming it’s problems.
We are the generation that will strive and toil to repay our own debt. And we refuse to do this in vain because we will not resign the future to the endless tuition hikes of the past. That trend stops with us.
We will free ourselves from debt and create a future where no one has crippling debt because they pursued opportunity through education.
We will systematically compel progress until one-by-one each barrier is eliminated and education is accessible to those who seek it’s opportunity.
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