What is the Student Debt Crisis?
$1.7 trillion is how much student debt 45 million people in the United States share. Over $119 billion of this total is from private student loans. This semester alone, our students faced a 3% tuition increase. Tuition at Minnesota State universities has increased by 2,224% since 1970 and 28% in the last 10 years. If you graduated in 1970, you paid $379/year to attend a Minnesota State school. Today, a year of school at a Minnesota State University costs more than $8,000. It’s been over 20 years since the state legislature funded our institutions pursuant to Minnesota Statute Section 135A.01:
It is the policy of the Minnesota Legislature to fund 67% of the cost of public postsecondary education, leaving students to fund 33%.
Additionally, the Higher Education Act (HEA) has never been proportionately updated. Passed in 1965, the HEA increased funding to universities and was designed to strengthen the educational resources of U.S. colleges and universities and provide financial assistance for students. Since then, the cost for a full-time undergraduate student has increased by more than 140%. In just the last 20 years, the cost of college has doubled and is currently increasing at twice the rate of inflation.
All of this is compounded by the fact that the demand for higher education has never been higher. A four-year degree is considered necessary for financial mobility in the United States, with increasingly limited opportunities for those without. The average high school student and adults without degrees are expected to find a way to pursue a higher education and taking out loans is considered the norm.
Our Language Choice
Our organization is led by a Board of Directors composed of the Student Body Presidents from each of our universities, along with three student officers. They inform our advocacy and our positions. As our board changes every year, we grow and expand with our students. This results in a continuous evolution of our advocacy towards what genuinely and authentically captures the feelings, positions, and expectations of the current student body.
Our language choice was intentional. We knew it may alarm some people. Using this language allows us to be aggressive in our advocacy, grab the attention of people who are the most affected and/or are less informed about the issue, and allows us to connect with millions of people who have student debt and feel exactly this way about it.
We also recognize that while using explicit language has become more acceptable in recent years, it has previously — and some cases still is — largely been viewed as inappropriate because of systems upholding concepts like “professionalism” rooted in control and power, often at the expense of poor/working-class people, people of color, women, queer and trans people, and more.
We hear this word behind closed doors in the halls of Congress, the state legislature, and other powerful, decision-making spaces, often casually. We believe utilizing that aggressive language to capture aggressive feelings and aggressive advocacy is appropriate.
Private vs. Federal Student Debt
Federal loans, for undergraduate students, have a borrowing cap and are awarded based on household income. Currently, the average cost of college over four years is more than the federal loan limit, leaving students to find other means to cover the outstanding costs. If a student is unable to find other means to pay their tuition-whether through help from their family or a sponsor or being awarded other grants or scholarships-they must face the difficult decision to either dropout, try to obtain private loans, or put remaining balances on credit cards.
Unlike federal loans, these loans have higher interest rates that are not regulated or capped. If a student does not have good enough credit or a long enough credit history, they will need to depend on a cosigner to obtain a private loan. Many students do not have access to a cosigner with acceptable credit and with the average age of people in the U.S. obtaining their first credit card being 20, it is not — and should not — be expected for the average college student to have the credit score necessary to obtain a private loan by themselves.
Private student debt disproportionately affects poor and working-class people along with Black, non-white Latinx, and Indigenous students because of the intersections of race and socioeconomic status. This exacerbates the already-massive wealth disparities between the wealthy and the working class and between white people and BIPOC and elevates the gap in generational wealth between white and non-white communities. Due to this, private lenders are more likely to engage in predatory tactics with vulnerable students, which leads to them taking out loans at higher interest rates and makes it more challenging for them to pay them off. Private loans also don’t have income-based repayment options, making the burden of student debt repayment greater for recent graduates with entry-level jobs. We cannot continue to frame higher education as a tool for class mobility if it has functionally become a tool for continuing class stratification.
Disparities & Inequity
Racism, classism, and other inequities in the U.S. education system date back to slavery, settler colonialism, Jim Crow, and Brown vs. The Board of Education. Those foundations cannot be uprooted quickly or easily. While important strides have been made to make our education system less discriminatory, Minnesota continues to rank as one of the worst states in the country for graduating Indigenous, Black, and other students of color from both K-12 and postsecondary schools. Minnesota is ranked worst in the nation for graduating Black and Latinx students and second-worst at graduating Indigenous students. A lack of data disaggregation to fully capture the unique makeup of Minnesota’s ethnic groups also results in the masking of education disparities for East African, Southeast Asian, and Central American communities.
Unsurprisingly, the student debt crisis disproportionately impacts Black, Indigenous, and other people of color borrowers. Black students are more likely to take on debt to attend college and graduate with nearly twice the amount of debt as white students. Additionally, Black borrowers are five times as likely to default on their loans. These students are also forced to drop out at higher rates than their white peers, leaving them with the burden of debt without the higher wages promised by earning a college degree.
Low-income students from all races carry the heaviest student debt burden. Low-income students are more likely to come from insecure housing and underfunded high schools, are more likely to have financial dependents such as children or family members, and are the most likely to not have access to basic needs like reliable transportation, consistent nourishing food, stable housing, and more. This also results in the lack of a social safety net, meaning there is no or limited access to family or friends who can help out with money, rent, groceries, emergencies, or anything else. Students living with these circumstances are less likely to have access to financial literacy resources and are more likely to be preyed upon by private lenders and for-profit services. Once in school, low-income students still face the decision of how to pay for outstanding tuition payments that federal student aid does not cover. As a minimum wage job often cannot cover the cost of living in most of the nation, low-income students are also more likely to need multiple sources of income, taking energy/time away from their academics.
Since the 1980s, federal student aid policy has steadily allocated more resources to student loan programs rather than need-based grants, which do not require repayment. Existing grant programs continue to fail at matching tuition increases, pushing students to borrow more and more every year.
The Middle Class
While low-income students do face the most barriers to affording and obtaining a college degree, an issue that’s often overlooked is how the student debt crisis affects students from middle-class households. The Federal Application for Federal Student Aid (FAFSA) determines the amount of federal loans and grants a student is awarded to pay their tuition. Since the application estimates expected family contribution, students from middle-class families are often left with either little or no federal aid.
Despite their parents’ income, many middle-class families cannot afford to simply write a check to their child’s college or university. For parents with more than one child, affording to pay for their children’s higher education is seemingly impossible. The FAFSA’s calculation of expected family contribution is a model that better fits wealthy families and is also an outdated idea of what a ‘family’ is. Students who do not belong to the typical nuclear family and, for example, may live with another relative, face more challenges in filling out the FAFSA. It also does not account for other ways excess income may be used, whether it be paying for health care costs or needs, or financially supporting a friend or relative.
The Economic Argument
Student loan debt holds back our community members from investing in the local economy, hinders financial freedom, and adds to the income inequality in our state. According to The Institute for College Access and Success, 68% of people have student loan debt in Minnesota. They also cite the average student loan debt in Minnesota is more than $32,000.
The student debt crisis has saddled America’s largest generation with overwhelming debt which continues to impact their spending decisions. According to research from the Federal Reserve, student loan borrowers are less likely than their debt-free peers to buy homes. Student debt is also preventing or delaying people from making life decisions they want to make like home buying or family-building, inhibiting the growth of small businesses, and is preventing people from saving for retirement.
A study published in the Levy Economic Institute of Bard College states that a one-time cancellation will translate to an increase of $86-$108 billion a year, on average, to GDP. While Students United is advocating for total cancellation, President Biden’s proposal of forgiving $10,000 for each borrower will eliminate student debt for 15.3 million Americans, or approximately 33.6% of all borrowers. With the average monthly student debt payment being nearly $400, total cancellation will allow the 45 million Americans carrying this debt to put this money toward other spending that will circulate more money through the economy.
Student debt cancellation will have a ripple effect on the economy. Studies support that student debt is a major contributing factor for whether or not someone may decide to purchase a home, car, or start a small business. These are all important industries for the job market and if the demand for purchasing a home or car goes up, if more people are starting their own businesses, inevitably more jobs will be created.
The Moral Argument
Current solutions have proven to be generally ineffective for many borrowers. Loan servicers for federal student loans mislead customers and most people who enrolled in Federal Student Loan Forgiveness have yet to see the benefit. For those enrolled in Income-Based Repayment Plans making the minimum payments often see their debt grow instead of diminishing because of growing interest.
The cost of higher education acts as a barrier to financial freedom and class mobility. Our society has been structured to treat college degrees as prerequisites for participation in the U.S. labor market. People who choose not to go to college out of fear of taking out loans are much more likely to be the victim of labor exploitation, be restricted to low-paying jobs, and have overall fewer opportunities to build wealth.
Students should not have to work multiple jobs, skip meals, and struggle to house themselves in addition to taking out federal and/or private student loans just so they can qualify for an entry-level job after graduation. A strong society benefits greatly from educating its citizens. College needs to be accessible so people can reach their full potential as meaningful contributors to our collective society.