The Student Loan Crisis

To Forgive or Not to Forgive

Photo by JESHOOTS.COM on Unsplash

Issue #51: Education

That is the question. Right now, President Joe Biden is under immense pressure to completely forgive all student debt. So far, he has only extended the moratorium on payments and interest yet again, this time until August 31, 2022.

• Believe it or not, student loan programs for high education have been around since 1840, when the first student loans were offered to students attending Harvard University. The loans were expected to be repaid by the well-off parents of the students, or by the students themselves after they secured lucrative positions right after graduation.

• The United States Department of Education was established in 1867 to help make public schooling more successful, but there was no student loan program. At that time, most Americans still lived in rural areas, and thoughts of even going to high school, much less college, weren’t on the minds of most people. Additionally, until just recently, many people could graduate from high school and go right into a union job at an auto plant or other manufacturing facility and they would be set with a comfortable middle-class income for life without needing a college education.

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• The original GI Bill was passed in 1944, and it offered dedicated payments of tuition and living expenses to attend high school, college, or vocational school to all veterans. These benefits were available to all honorably discharged veterans who had been on active duty for at least 90 days during the war years. 

• In 1958, in response to the surprise of the Soviet Union getting into space first, the National Defense Education Act offered Federal student loans, grants, and scholarships to students who wanted to study math, science, engineering, or foreign languages and who wanted to become teachers. 

  • That is how my mother became a science teacher. She was a nurse who was recruited to be a substitute science teacher while she went back to school to get a Bachelor’s degree in education. The Detroit Public Schools figured that since she was a nurse, she knew enough about science to teach at the elementary school level. She restarted her college career in 1957 and graduated in 1960; she then went on to get a Master’s Degree in Mathematics Education, again primarily financed by Federal programs.

• Between 1965 and 1992 several different laws and acts were passed, including the Pell Grants for financially needy students. The loans and grants for all of these programs were subsidized by the Federal government.

• In 1992, the Higher Education Amendments created the Direct Lending program and the unsubsidized Stafford loans, which meant that students now had to cover the interest costs themselves while they were still in school. These programs marked the end of the subsidized loans by the Federal government and the beginning of the modern-day student loan system.

• Starting in 2008, during the Great Recession, private lenders began to opt out of the Federal Family Education Loan Program (FFELP), because they felt they could no longer provide loans to college students.

• By 2021, outstanding student loan debt passed $1 trillion.

How did we get here and what to do now?

Paradoxically, the availability of student loans meant that colleges and universities increasingly raised the cost of tuition and fees with the expectation that student loan distributions would cover the increased obligations. The more federal financial aid becomes available, the more the costs of a college education increase to match.

During the 2007-2009 stock market crash and Great Recession, Americans lost trillions in real wealth, including their homes, and therefore had no savings for helping their children with college expenses. President Obama tried to encourage people to go to college to increase their chances of better jobs, but even the increase in Pell and other grants didn’t help much for even the costs of a two-year college: $12,000 per year, or about 20% of the typical household income.

President Obama always reminded people that he and Michelle were still paying off their law school loans (a total of $80,000) even as he was a state senator. But people were also reminded that the Obamas’ student debt was finally paid off in full by the large advance then-Senator Obama received for his second book. 

Although principle and interest payments for student loans have effectively been on hold since the beginning of the pandemic, and President Joe Biden keeps extending the deadline, there will soon come a time when a full decision will have to be made.

Student loan forgiveness is very popular, except when it’s not.

It used to be that Americans wanted the next generation to “do better” and have more opportunities than they had. That is not always true today.

Many people say that although it was hard for them to pay off their student loans, they happily support any student loan forgiveness so that others (“the next generation”) won’t have to go through what they did.

Many others, however, feel that they paid off their student loans and everyone else should as well. They declare that they don’t want to be responsible for the debts of others, ignoring the fact that for decades, the Federal government, through everyone’s taxes, paid for or subsidized student loans directly or indirectly, including for those now complaining.

My parents paid for my undergrad college tuition and boarding (and I had jobs for other expenses), but I took out a loan for my graduate school degree. This was decades ago, and I remember that 1) unlike today, the interest rate was just 1% annually and the monthly payment was a very small percentage of my family budget, and 2) after five years, the remaining debt was forgiven because I taught in the public schools, which I went to school to do anyway.

The situation for most of today’s student loan borrowers is much different. The cost of college has skyrocketed while incomes have not kept pace, and the spiraling principle and interest fees of student loans keep people paying on those loans for decades, hindering their ability to start a family, buy a home, or start a business.

The Republicans are going crazy about the possibility of student loan debt forgiveness, saying 1) that it is a giveaway to “wealthy people”—the great majority of borrowers are low-income Black and Hispanic people, and 2) if student loan debt is forgiven, what would be next? Car loans? Mortgages? 

The Republicans happily accepted the 2017 $1.9 trillion tax cut for businesses and the wealthiest of Americans that we are still paying for and that has not produced the “business growth” promised.

But those same Republicans feel that forgiving $1.7 trillion in student loan debt is wrong on every level they can think of; again not realizing that it would be good for the economy in the short- and long-term while benefitting middle- and low-income Americans the most.

Of course, the Republicans also know that some kind of student loan forgiveness is very popular with the majority of people, and because it would come from Democratic President Joe Biden, they naturally have to be against it.

When and How?

While many people think that all President Biden has to do is sign an Executive Order with a pen and eliminate all student debt, in reality, like just about everything having to do with government, it is quite a bit more complicated than that.

At a press conference on Thursday, April 28, 2022, President Biden said he probably would not forgive a blanket $50,000 in debt for everyone, but that he would have an answer in a couple of weeks.

I guess we’ll just have to wait and see.

Are you or someone you know negatively affected by large student loans?

Do you think part or all of the student debt should be eliminated? Why or why not?

Let us know in the comments.