This article first appeared in the For Our Future Newsletter, a monthly newsletter that dissects national issues with a local focus and examines solutions. Sign up for it right here, or by using the form at the bottom of this article.
You’ve surely heard all your life that the brightest future is obtained through a college degree -- but while higher education serves an important purpose, it is not the only way to achieve success in life.
Still, for the last several decades, college has been viewed as an essential life step -- and many have taken it.
For those who did dabble in higher education and weren’t lucky enough to enroll when tuition costs were lower, or if they had to pay for their schooling all by themselves, chances are they had to take out student loans to help offset the costs. And many people are, quite literally, still paying for it.
Well, at least 14% Michiganders have outstanding student loans -- which is more than 1 million people. The fifth highest percentage of any state in the entire country.
Though student loans seem to be an inevitable, unending aspect of American life, some lawmakers are cooking up ways to change that, through forgiveness and other proposed plans. But is student loan debt forgiveness even a potential reality in the U.S.? Is it the best way forward? If not, then what?
With student debt at its highest ever in U.S. history, there is one thing most people agree on: Something has to change.
Student loan debt, now and then
More than 43 million Americans collectively owe $1.56 trillion in student debt today.
The country’s collective student loan debt is the highest it has ever been in history -- which isn’t surprising, considering tuition costs have consistently increased over the last several decades.
Tuition costs for 2-year and 4-year institutions jumped an average of nearly 117% from 1985-2019 -- and that’s adjusted for inflation. If you go back even further in our history, like 1969, for example, the cost of tuition at a 4-year institution was around $2,300 (adjusted for inflation). That’s an increase of about 340% from 1969 to 2019.
This isn’t to say that college wasn’t always expensive, especially for some, but the cost was far more manageable back in the day. Students who worked full time while attending college could, in theory, afford to pay for their schooling in real time. So, fewer people took out debt to pay for their education than they do today.
As mentioned earlier, 14% of Michigan residents currently have student loan debt -- the fifth highest percentage in the nation, behind Washington, D.C. (16%) and Ohio, Georgia and Mississippi (each 15%).
Last week, I sent a poll to the readers of our For Our Future Newsletter to gauge where they fell within the student loan crisis in terms of how much money they borrowed, how much they still owe, how long they’ve been repaying their loans and what type of school they went to.
Of the more than 60 responses, a majority of respondents -- more than 30% -- borrowed and still owe more than $75,000 in student loans. (Side note: I initially questioned whether I should even include that number as an option, after learning that the average Michigan resident owes around $36,000 in student loans -- I thought it would be too high. Now I’m wondering just how high that number might actually be.)
Here’s a breakdown of our survey results as of Monday, Aug. 30:
The majority of our survey respondents (75%) said they attended a 4-year institution.
Most respondents graduated relatively recently, saying they’ve been repaying their student loans for 4-6 years (students get a 6-month grace period following graduation before they must start repaying loans). The next-largest demographic says they have been repaying their student loans for more than 10 years. About 13% of respondents have been repaying their loans for more than 20 years.
These expenses are affecting people of all ages, not just Millennials and Gen Zers, according to today’s topic expert, Megan Leonhardt.
She says that since the 1960s, the number of people trying to obtain college degrees has rapidly increased alongside the cost of tuition, so more and more people have been taking out student loans.
However, Leonhardt, a writer for Fortune and previously a senior money reporter at CNBC, says the problem was exacerbated, in part, by the 2008 financial crisis.
According to Leonhardt, college costs have been on the rise for decades, but the Great Recession that followed the 2007-2008 financial crisis had a significant impact on how much state funding went toward higher education.
Public colleges and universities in the U.S., which are not-for-profit, are mostly funded by state governments. So when the latest financial crisis hit the nation, there was “a lot of pull back from states” when it came to funding education, Leonhardt says. And with state funding limited, colleges had to adjust -- and tuition costs have been rising since, by about 28% for undergraduate institutions between 2008-2019.
There have been several factors impacting the rise of higher education costs over the decades, and we can’t cover them all today. Click here to read more on this from NPR.
Economic issues have improved since the 2008 crisis -- that is, until a global health crisis was hurled our way.
Pandemic impact on student loan debt
While talking with Leonhardt, I learned some surprising information: National student loan debt has actually decreased amid the coronavirus pandemic.
Though millions of Americans have been facing unanticipated financial hardships due to the pandemic and job losses, a temporary policy has actually helped borrowers to repay their loans amid the public health crisis.
During the pandemic, the federal government instituted a pause on federal student loan repayment, so borrowers have not been required to make payments for the last several months. During this pause, interest rates have been at 0% -- so, for those who chose to continue making payments on their loans over the past year, their money has gone directly to their principal amount owed and not toward interest.
Between the first and second quarter of 2021, the national student loan debt decreased from $1.7 trillion to $1.56 trillion -- about a $14 million decrease. A few million Americans were even able to pay off all of their loans during the pandemic, thanks to the government’s pause.
Leonhardt says the pandemic actually triggered a rise in savings rates among Americans, with normal life coming to a screeching halt.
But the government’s pause on federal student loan repayment is set to expire on Jan. 31, 2022, and officials say there won’t be an extension beyond then. And while many were able to continue making payments on their loans, about 13% of the U.S. population is still swimming in debt.
Why does it matter that so many Americans have student loan debt?
Well, long story short, those with a significant amount of debt -- and, in turn, more monthly payments to make -- aren’t able to contribute to the economy the same way others without debt can. Individuals with student loan debt are more likely to wait until they pay off their loans before they do things like purchase a house or have children.
“Student loan debt is so pervasive, how it affects your life going forward,” Leonhardt said. “This is something that affects folks’ decisions to buy a home or start a family. Their career choices are affected because they may have to focus on finding something that pays more.
“You don’t want people to say they can’t be a homeowner because they have so much debt,” she added.
But, unfortunately, that seems to be the reality for many Americans today.
Aside from waiting for borrowers to finish repaying their student loans, assuming they ever do, lawmakers are introducing solutions to tackle this crisis and help borrowers at a faster pace.
How the government is responding
If you keep up with politics at all, you’ve probably heard about a few proposals for student loan debt forgiveness in the U.S.
Some Democratic lawmakers, like senators Elizabeth Warren and Chuck Schumer, have been publicly pushing for up to $50,000 student loan forgiveness for every borrower in the country, calling on President Joe Biden to make it happen through executive action. This discourse has been among the most prominent, as Leonhardt says Warren and Schumer are very vocal and are “very focused on doing the maximum amount of impact at once.”
While we can’t say for certain this kind of forgiveness is an impossibility, it is unlikely that Biden will take such action, Leonhardt says.
Other Democratic lawmakers are calling for up to $10,000 student loan forgiveness for all borrowers, and this has been suggested as legislation that would need to be approved by Congress. But, despite the Democrats’ majority in the branches of federal government, they likely will not have the support required to pass such legislation. Though, Biden did say he would support this action if it were to pass through Congress.
According to a report from the U.S. Department of Education, more than 36 million Americans would benefit from student loan forgiveness of up to $50,000. More than 15 million Americans would reportedly benefit from forgiveness of up to $10,000.
Though the future of these two concepts is unclear, it’s important to note that there has been student loan forgiveness for many borrowers already this year. During the pandemic, the Biden administration forgave about $56 million in student loan debt for some 1,800 students who were potentially defrauded -- so, not just anyone can have their loans forgiven.
Just weeks ago, the Biden administration announced that it will automatically erase more than $5.8 billion in student loan debt for more than 300,000 Americans who have severe disabilities that leave them unable to earn significant incomes.
While debt forgiveness has been the most discussed option in the media, it is certainly not the only option at play.
Leonhardt, who spoke with dozens of U.S. legislators, says that several other proposals have been introduced, or are being discussed, that address the student loan debt crisis in smaller, more foundational ways -- and these proposals may have more widespread support.
Such proposals include plans to reduce interest rates on federal student loans, or to lower student loan refinance rates. There has also been talk of allowing student loans to be discharged when a person files for bankruptcy, which has been difficult to achieve in the past.
There are also suggestions that look to prevent more student loans from being taken out in the first place, like increasing the amount of Pell Grants that are offered to students to help offset the costs of education. Just last week, the House approved a $3.5 trillion spending plan that would allow students to enroll in community college at no cost, which opens the door of education to many who may not be able to afford classes at a traditional 2- or 4-year institution.
Leonhardt says these kinds of proposals have been supported by lawmakers who don’t necessarily support blanket debt forgiveness, and they could certainly impact borrowers in a positive way.
But will these smaller, bit-by-bit proposals wipe out $1.6 trillion in student debt nationwide? Leonhardt says “probably not.”
“We need a combined, multifaceted approach,” she said.
Americans facing student loan debt likely support plans for government forgiveness, but others -- particularly those who wouldn’t directly benefit from them -- don’t support them, with many saying they do not want their tax dollars to go toward the forgiveness of loans that they didn’t take out. And while no one can say for sure just how federal loan forgiveness would be funded (we would need to see an actual proposal with a plan outlined, which doesn’t exist yet), it is likely that tax dollars would be involved, Leonhard says.
And it isn’t likely that we’ll see an actual proposal from U.S. lawmakers for a while, since they extended the loan repayment pause until next year, giving them some time to work on a plan.
With no clear path forward coming from the government, Leonhardt says it’s important to not get hung up on the possibility of student loan forgiveness.
‘Don’t bank on student loan forgiveness’
Our expert says that student loan forgiveness faces an uphill battle in government, and that it wouldn’t be wise to consider it a guarantee.
“I would caution people to not change their lives or get really hung up on student loan forgiveness right now,” Leonhardt said. “It’s a nice idea, it’s an ongoing discussion and an important discussion to be having -- but I’m really worried about people who say they aren’t going to pay their student loans because forgiveness is coming. Don’t do that.”
Instead, she says that people who are able to make payments on their student loans right now should, especially with interest rates at 0% until next January. She says it’s important for borrowers to remain in good standing when it comes to their loans, because once things take a turn for the worse, the consequences have a tendency to “snowball” and could impact your credit score and more.
For those unable to make payments right now, Leonhardt says it’s a good idea to at least make sure all of your contact information is up-to-date with your federal loan servicer, especially because many federal student loans are switching to new servicers after two major servicers essentially “quit” in recent months. And make sure any questions you may have are asked sooner than later, as servicers are expecting to be extremely backed up once the repayment pause ends, especially due to a potential shortage of employees.
While waiting for the repayment pause to end, Leonhardt says it’s a good idea to keep a close eye on your monthly income and budget, and prepare for resuming your student loan payments in a few months. It’s always a good idea to seek professional financial advice, if you can, when trying to get your budget in order. If you can’t afford a financial advisor, some community organizations offer free financial guidance.
In Detroit, for example, the Wayne Metropolitan Community Action Agency offers free financial planning services for residents through their Financial Empowerment Center. Learn more about the program here.
The unfortunate, but honest, takeaway from our research on this subject: What the future holds for student loan debt and college tuition costs is currently unknown. Will tuition continue to rise? Will student debt be forgiven? There is no way of knowing for certain right now. But with the issue at its peak, we know that it has to be addressed in some capacity sooner rather than later.
We also know that your student loans still exist, and that you should plan for your repayments to return to business as usual.