Institutional Factors Behind Student Debt Crises

Student debt is a significant burden on America's middle class, with federal student loan debt totalling $1.6 trillion and rising. Colleges and universities have been criticised for their role in this crisis, as they continue to increase tuition fees and profit from students. While some institutions have used federal relief dollars to provide debt relief to students, this only applies to debts owed directly to the institution and not to federal student loans, which make up the vast majority of student debt. The Biden administration has attempted to address the issue by approving billions in student debt relief and pushing for more transparency around post-graduation earnings to help students make informed decisions about their education. However, the incoming Trump administration has expressed intentions to overhaul colleges and universities, with conservatives calling for a risk-sharing program that would penalise institutions financially when their graduates struggle to repay loans.

Colleges and universities are cancelling some student debt

The American Rescue Plan (ARP) provided over $36 billion to higher education institutions through the Higher Education Emergency Relief Fund (HEERF). This fund was created under the CARES Act, and institutions received money based on the number of enrolled students, with additional weight given to those receiving Pell Grants. While a portion of this money was required to go directly to students in the form of emergency grants, institutions had discretion over how to use the rest, as long as it was related to the COVID-19 pandemic.

The Department of Education's updated guidance on the institutional portion of funds included a provision that allowed institutions to use their grants to discharge student debts. This provision enables institutions to cancel debts owed directly to them by students, helping students continue their education and providing relief to those with outstanding balances. However, it is crucial to understand that this does not apply to all previous students who may owe money to a college or university, and it does not include federal student loans.

While the cancellation of some student debt by colleges and universities is a positive development, it is important to provide clear and accurate information to borrowers. The distinction between institutional and federal debt relief is crucial, as it can significantly impact students' financial decisions and understanding of their debt obligations. As of now, there is no indication that the federal government will provide widespread student loan cancellation outside of existing forgiveness programs.

The Biden-Harris administration has approved student debt relief for millions of Americans, including through the Saving on a Valuable Education (SAVE) repayment plan. This plan provides debt forgiveness to borrowers who have been in repayment for at least 10 years and took out $12,000 or less in student loans. Additionally, the Public Service Loan Forgiveness (PSLF) program has been improved, providing forgiveness to borrowers in public service jobs after 120 qualifying monthly payments. These efforts demonstrate a commitment to helping borrowers struggling with student loan debt.

Tuition inflation has been higher than regular inflation

The average debt for a student may now top $40,000, and a significant 42% of borrowers are still paying off their balances after 20 years. The struggle to repay this debt has enormous repercussions, from the psychological stress of owing large sums to delaying or foregoing buying homes or starting families.

The Biden administration has attempted to address this issue with a three-part plan to deliver debt relief to those who need it most. This includes targeted debt relief of up to $20,000 for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients with individual incomes of less than $125,000. The plan also aims to make the student loan system more manageable by cutting monthly payments in half for undergraduate loans and fixing the Public Service Loan Forgiveness (PSLF) program.

The administration is also taking steps to protect future students and taxpayers by reducing the cost of college and holding schools accountable for increasing prices. They have championed the largest increase in Pell Grants in over a decade and provided billions of dollars to colleges and universities through the American Rescue Plan for emergency student financial aid.

Despite these efforts, the high cost of tuition and the resulting debt continue to be a significant burden for many Americans.

Students are borrowing more as federal support has not kept up

The rising cost of college education has resulted in a student debt crisis in America, with students owing more than a trillion dollars in student loan debt. The federal government's support has not kept up with the increasing costs, leaving many students with no choice but to borrow money to pursue their degrees. Pell Grants, for instance, used to cover nearly 80% of the cost of a four-year public college degree for students from working families, but now they only cover a third. This has resulted in students from low- and middle-income families having to take out loans to finance their education.

The average debt for a college degree may now top $40,000, and a significant number of borrowers are still paying off their balances after 20 years. The struggle to repay this debt has far-reaching consequences, from the psychological stress of owing large sums of money to delaying major life decisions such as buying a home or starting a family. The effects of debt are even more crushing for vulnerable borrowers, with nearly one-third of borrowers having debt but no degree, and about 16% of borrowers defaulting on their loans.

The rising cost of college education is outpacing federal support, leaving students with no choice but to borrow more money, which contributes to the growing student debt crisis in America. This trend is particularly concerning given the already high levels of student loan debt in the country.

The Biden administration has recognized this issue and has taken steps to address it by providing student loan relief to borrowers. They have proposed cutting monthly payments in half for undergraduate loans and fixing the Public Service Loan Forgiveness (PSLF) program to ensure that borrowers receive appropriate credit toward loan forgiveness. Additionally, the administration has fought to double the maximum Pell Grant and make community college free to reduce the financial burden on students and their families. These efforts aim to make higher education more accessible and affordable for low- and middle-income families.

Colleges and universities are being held accountable for student debt

The Biden administration has taken steps to strengthen accountability and ensure that colleges keep prices reasonable. They have re-established the enforcement unit in the Office of Federal Student Aid and withdrawn authorization from an accreditor that oversaw schools responsible for for-profit scandals. Additionally, they have proposed rules to hold career programs accountable for leaving graduates with unaffordable debts and insufficient earnings.

The Biden administration has also announced plans to publish an annual watch list of programs with the worst debt levels and request improvement plans from colleges with the most concerning debt outcomes. These actions aim to provide transparency and encourage colleges to reduce costs.

Furthermore, the administration has implemented the Gainful Employment rule, which will require all colleges to disclose information to borrowers about typical graduate earnings and debt loads. This rule will help students make informed decisions and hold institutions accountable for the financial implications of their programs.

While these measures are a step in the right direction, some critics argue that more needs to be done. The Biden administration's free community college plan, for example, has been met with skepticism by some, who argue that it may not be the best use of resources. Additionally, there are concerns about the potential negative impact of "risk-sharing" programs, which could discourage schools from accepting students in lower-paying fields.

Overall, while colleges and universities are being held more accountable for student debt, it is a complex issue that requires careful consideration and a range of approaches to ensure that higher education remains accessible and affordable for students.

Student debt disproportionately affects Black borrowers

Black borrowers take out an average of $39,500 in student loans, while white students borrow an average of $29,900. This is reflected in the fact that 86% of Black students take out student loan debt compared to only 68% of white students. Black students are also the most likely demographic to struggle financially due to student loan debt, making monthly payments of $260. This is reflected in the fact that over 50% of Black student borrowers report their net worth is less than they owe in student loan debt.

The student debt burden falls disproportionately on students of color and their families, creating an even further racial divide in wealth. This is due to the fact that students of color have fewer socioeconomic resources, less parental and generational wealth, less home equity to finance a loan, and fewer savings. This is reflected in the fact that 86% of Black students take out student loans, compared to only 68% of white students. A Brookings Institution study found that the disparity in student loan debt between Black and white students more than tripled just four years after graduation, further eroding Black students' ability to build wealth.

Student loan debt has long-lasting effects on borrowers' mental health and capacity to thrive. A 2022 ELVTR survey on student loan debt revealed that borrowers experience adverse mental health conditions as a result of their debt, with 56% reporting anxiety, 32% reporting depression, 20% reporting insomnia, and 17% reporting panic attacks. Black borrowers are the most likely to report having to work more than they would prefer, with 43% saying so. This is in addition to the fact that they are also the most likely to delay buying a home, with 46% reporting this.

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