Sisters Talking On. . .Student Loan Debt – Fix or Forgive?

We are back!  We sisters have continued to discuss and debate many (oh so many) topics since our last post, as we are sure many of you have as well.  It’s been a tumultuous time to say the least, and to be honest, it was a bit disillusioning with the insurrection, the pandemic, war, inflation…you know the drill.  It was a difficult time to see the good and be constructive and offer potential solutions to today’s issues.  But we have been inspired by the optimism of young people taking on challenges, starting new jobs, having babies, having hope, and prioritizing what matters to them.  We have also been inspired by others our own age and beyond who are finding the joys in life.

So we are back, and starting with a topic that is relevant to young and old alike – student loan debt.

Point for Discussion

According to the Education Data Initiative, nationwide student loan debt is $1.745 trillion dollars, or an average of $38,000 per borrower.  Investopedia further reports the most debt among 35-49 year olds ($55 B), followed by 25-34 ($49 B), but those aged 51-60 have the highest average debt of $45,140 per borrower, so it is an older and younger issue, and in some cases, multi-generational within the same household.  Over the years, student loan debt has also been bought and sold by investors without borrower’s knowledge, and at times, with changes in rates that were not authorized, making it difficult to even pay the interest each month, thereby creating a cycle of ever-growing and never-ending debt. 

This is an issue that must be addressed.  During the pandemic and until the end of the year, student debt loan payments have been paused and were set to resume again in January 2023, but have just now been extended again to June 2023.  The Biden administration recently passed a student loan forgiveness measure that is being debated in the courts….and in our Points of View that follow.

Our Points of View

(Laurie)

Education is at the core of this issue.  If I were to conduct a survey today and compare with 20 years ago, I would expect to see the same level of interest in education – to learn and to boost earning potential throughout one’s life, though I may see a difference in the definition of “education.”  I would also likely see the same or higher level of concern with being able to pay back student loans.

I see 4 groups of prospective students and funding strategies:

1. Those who take out loans for their schooling with the expectation for higher paying jobs to enable paying the loans back – and with the expectation that they could pay the loans back given their agreed upon interest rate, length of term, and total amount owed.

• Those who seek scholarships for their schooling through academics, sports and other talents – with a lot of pressure, but big reward, if it is attainable, and if not, may need to borrow.

• Those whose family or friends graciously covered the cost of their schooling with the means to give them a boost in life.

• Those who work while going to school to gain experience and pay as they go without debt  – even though it may take longer (a lot longer) to complete a degree (like I did).

All four groups have the same goals.  And those who took out loans took them out responsibly with the intent to pay them back over time.  But somewhere during their term, the rules changed – jobs were gained and lost, the cost of tuition increased, interest increased, and/or someone else holds their debt, making it difficult to even pay the interest.  Whether federal or private student loans, neither appear to have protected borrowers enough.

When I heard about the proposed student loan forgiveness, my first reaction was a human one – “What? I had to pay my own way, go to school locally rather than get the ‘college experience’.” And “What about all of those people who have paid off their loans over decades and only just came out from under them after many sacrifices and delayed milestones in life?” “Is forgiveness even fair?”

Then I stepped back and thought about the underlying cause(s) of this current situation:

• High and increasing interest rates (even after the contract is signed)
• High and increasing cost of tuition
• Selling of debt to other creditors

To me, the current student loan forgiveness measure does not touch any of these causes  – it forgives a portion of debt ($10,000 or up to $20,000 if with a Pell Grant) for existing borrowers, and only applies to federal student loans (and only some of them) and only for individuals earning less than $125,000 (or $250,000 for household).

It DOES NOT FIX the issue for any of those with private student loans nor for those still acquiring student loans going forward.  In fact, in today’s inflationary environment, the situation is worsening.  Does this mean taxpayer funds will be required to forgive debt every few years? (The human side of me: “so I’m paying for others to go to school that I didn’t get to go to”).

FIX is better than FORGIVE.  We need to change the overall rules to protect borrowers, give them hope, and help them live their lives, which might look like the following:

• Student loan interest should be capped (at 3%?) so that all new borrowers know their monthly payment and when their debt ends so they can plan their financial goals (and life) around that – just like auto loans or home equity loans – still loans, but with fixed rates and terms.  Common sense.

• Every existing borrower could receive a one-time rebate or credit of $10,000 after paying back a certain percentage of their loan (25%?) or after 10 years of paying, whichever comes first.  This would apply not just to federal student loans.  The rules changed on them, so we need to re-set the level.

• Terms of the contract with new and existing borrowers must remain intact for the life of the loan even if the creditor changes.

• College tuition (and trade school expenses) should also be capped at a certain level for a period of time – maybe based on the success of its graduates in finding a well-paying job within 3-6 months after completion.  Or maybe, the cost of tuition could stay the same once a student enrolls as long as they continue their coursework. A partnership is needed between higher education institutions and the students who commit to enroll in their programs.

• Career advisors could introduce students to multiple options, personalized to a student’s interests with equal focus on community college (one of the best ways to boost progress in an accredited and lower cost way), trade schools (a hidden gem), 4-year colleges, and even apprenticeships or mentorships.  The fact is, college isn’t for everyone, nor is it the be-all, end-all.  This varied and custom approach will also add competition to course costs and borrowing costs.

These solutions could help to better ensure that students can make more informed choices, pay their loans back and move on with their lives because they know what they owe, when they owe it, and when the debt will be paid off.

(Lynn)

This is quite a hot button issue for a lot of people.  I know many professionals that are still dealing with student debt twenty to thirty years after graduation.  It has inhibited their ability to borrow for mortgages, car loans and other long term financing agreements.  Education is important and should allow us to earn a good living and rise through corporate ranks, making the repayment of those student loans easier, but it doesn’t always work that way.

I disagree with Laurie’s base premise that many believe education to be important and necessary to be successful in life.  Since the Great Recession in 2008 – 2009, many young adults have had a difficult time finding employment in their chosen field.  There may be a huge number of reasons for this ranging from fewer opportunities all the way to not wanting the corporate grind. 

The COVID-19 pandemic has not helped the situation.  Many more jobs disappeared in early 2020 as we all lived through the pain of isolation.  We learned that many of those employed no longer felt that what they were doing was what they wanted to be doing.  So began the great resignation.  Workers job-hopped hoping that they would find something that would make them happier.  Maybe for more money, maybe for a more fulfilling experience.  Some employees actually left their 9 to 5 with no plans to ever go back to that type of work.  They could create something online and work for themselves.

I’m not sure that being an influencer takes a university degree.  Perhaps the new gig economy and online opportunities have made young adults rethink the college education path to success. They’ve seen their parents deal with student debt payments and aren’t all that eager to sign up for the same thing.

I do agree with Laurie that the system is broken.  I also understand how offensive it may be to see loans forgiven after graduates have diligently paid back their student loans.  President Biden’s plan for student loan forgiveness will be expensive for all taxpayers. I don’t necessarily understand the reason for the loan forgiveness other than it will allow debtors to better handle the current excessive inflation.  Is this a compelling reason?  Since the loan forgiveness program won’t help a large portion of the population that is trying to manage through the excessive inflation we see now, it seems to be more of a band aid that does not address the larger student debt issues.  For those that have applied, though, the promised program could provide them with a much needed benefit.

Each contract entered into is done under specific conditions.  As student borrowers, the students agreed to pay back the loan under detailed and specific conditions.  Arbitrarily changing those conditions is not fair to others. I see it as similar to a mortgage or car loan.  Borrowers agree to certain conditions for the life of the contract and should therefore be held to those terms.  Lenders need to be more transparent regarding the terms of repayment as they are now with car loans and mortgages so that students know exactly what they are signing up for.

Going forward, the program needs to be fixed for those individuals that want higher education but don’t have the means to make it happen.  Laurie’s consideration of low to no interest loans could be helpful, but those would still require potentially long payback periods.  Since that will still impact individuals credit score, big ticket purchases could still be challenging.  It would be helpful, but not necessarily the best solution.

My understanding is that there are many grants and scholarships offered to students, many more than had been offered in the past.  Students need to be more aware of these and understand the process for applying for these.  Perhaps high schools could do a better job of helping students match their aspirations to the grants and scholarships available to maximize the potential of securing them.  Admission counselors at colleges and universities could help as well. 

My thoughts on the subject tend more to the public service side. This could be from either the corporate or student service side.

From the student side, federal student loans in exchange for public service with the federal government could be a fair exchange. Not only would the government have a pool of candidates to choose from, graduates would have an opportunity to learn how our government works from the inside.  No spin from the media or misinformation from advertisements.  Many graduates may find that this is where their true career path lies. 

Public service of some sort should be required for all who have federal student loans……..if you work for x number of years in public service then your loan could be forgiven.  There are variants of this program in existence today.  I know of graduates that work in public service positions that have had the balance of their loans forgiven after 10 years of payments against those loans.  This type of program could be expanded. 

Many corporations have a social impact mission. Rather than earn for the sake of earning, they have set service goals that give back.  These range from providing items to homeless shelters, lifting up communities by creating jobs ……, to offering grants and/or scholarships for college students. Unfortunately, there aren’t enough corporations with these service oriented missions. 

Given that qualified employees are difficult to hire currently, these corporations could offer college funding in exchange for employment to new graduates.  The students would sign a contract upon receiving funds that would commit them to working for the company for a period of time at full market based salaries.  Contract provisions could include minimum GPAs for the students and position level commitments for the employer.  If corporations want well-educated candidates to apply for positions, this would be a way to manage that. The federal government could also offer some sort of tax credit incentive to help out with this.

Let’s not forget that higher education is available through military service. Our service organizations provide some funding and programs that can assist with learning a trade.  I remember when military service was a good thing to include on a resume.  That level of respect seems to have declined in recent years.  We need to respect our veterans and take advantage of the skills they’ve acquired while serving and help them gain the skills they need to find their individual success in life.  These veterans were willing to sacrifice for our democracy and that should be recognized with support for their education.

Maybe the federal government could provide an allowance of a certain amount per person that would offset early college expenses.  This would allow potential students to start college, find direction that would be meaningful to them, either through continuing college, or finding that they want to follow another path.   This beginning could be a trade school or community college or accredited university. The funding could be available to all as a once in a lifetime benefit through a tax credit.

Regardless of program chosen by students, the terms of each contract should be clearly understood by both parties involved and the terms of the agreement should remain in place until all obligations are met on both sides. Signing up for a loan with the hope that someday you won’t have to pay it back is unrealistic.  Students need options so that they can choose the one that meets their personal needs and objectives. 

If, as a nation, we believe higher education is important then we need to support educating our citizens.  We all need to find our own version of succes in life.  The path isn’t the same for everyone but programs should be available equally to all. 

 Our Question for You:

What do you think would help solve the student debt issue?  Loan forgiveness or fix, or a combination, and how might it work?