Student debt

Student debt is money borrowed by individuals to cover the costs of higher education, usually in the form of student loans. Two types of student loans exist: private and federal. Each type has different terms and conditions that affect interest rates, repayment plans, and more. For example, if graduates in the United States default on repaying federal school loans, the government is able to collect these debts through other methods, which may include garnishing wages and tax refunds or going after loan cosigners.

Student debt is not just a problem in the United States. Students in other countries also carry debt related to education, but the amount owed varies by student and country. This is due to a variety of factors, including the cost of tuition, the amount of financial aid received, and the requirements of the repayment system.

Student Debt in the United States

Student debt has become a large problem in the United States due to the rising cost of college. The National Center for Education Statistics reported an average annual cost (including tuition and fees) of around $29,000 for the 2020–21 academic year at four-year colleges and universities. Public institutions averaged $9,400, while private nonprofit institutions averaged $37,600, and private for-profit institutions averaged $18,200. These amounts represented an increase of between 10 and 19 percent over amounts in 2010–11. In the 2020s, school loans were one of the largest sources of debt in the US (home mortgages were the number-one source of debt that year). According to the Washington Post, in 2023, 24 percent of adults between the ages of eighteen and twenty-four, and 33 percent of adults between the ages of twenty-five and thirty-four, had student loan debt. Loan amounts include not only interest but also fees based on the amount of the loan, and therefore the total amount borrowed can be more than initially apparent. The average amount of student loan debt owed in 2023 was nearly $29,000.

While the amount of debt students took on in the 2010s increased, the pool of jobs available to college graduates decreased. The jobs sector in the United States was slow to recover following the 2008 economic recession, and wages remained stagnant in many fields. These factors created many issues for recent graduates. Some individuals put off other plans, such as purchasing a home or a car, as they took more time to pay off their school loans. Though the job market improved by the 2020s, other factors contributed to challenges in paying off school loans, including the impacts of the COVID-19 pandemic and high inflation rates.

Many observers contend that the job market is not only to blame. Colleges and universities are a part of the problem. Many states have cut funding for higher education. Operating on smaller budgets, these institutions must determine how to recoup lost funds. Schools often pass on the costs to students in the form of higher tuition. Then students must borrow more money to make up the difference.

Some critics argue that colleges and universities do not put enough emphasis on preparing students for the job market and do not assist with job placement. Researchers suggest that colleges revise traditional curricula to include career-focused majors and internships and cooperative education programs that prepare students for working in the real world after they graduate.

The government has also been blamed for not doing enough to combat the rising costs associated with attending college. Some government officials have responded to these concerns by attempting to enact legislation to help students. During the early 2000s, efforts to address tuition costs included President Barack Obama's 2009 Student Aid and Fiscal Responsibility Act, which, among other provisions, increased the amount of money available for Pell Grants (federal grants awarded to students in financial need); adjusted income-based payments on loans so that a smaller percentage of the borrower's income would go toward repayment; and instituted debt forgiveness under certain conditions. Another important aspect of the legislation was that it ended the federal government's subsidy of private loans, making all federal college loans direct loans, thus lowering interest rates for borrowers by cutting out the private banks. Private loans, which students increasingly used from the 1980s to the early 2000s, often charged higher interest rates (sometimes 18 percent).

Policy changes occurred at lower levels of government as well. For instance, in 2017, New York governor Andrew M. Cuomo introduced the Excelsior Scholarship, which enables middle-class students, often too well-off to qualify for assistance but too poor to afford tuition, to attend two- and four-year state colleges and universities in the state tuition-free. Opponents to such programs feel that job creation is the solution to fixing the economy and, in turn, combating the student debt problem.

In the 2016 presidential campaign, student debt proved to be a significant topic for debate. Democratic candidate Hillary Clinton campaigned on a platform focused upon student forgiveness, which included a proposal to give families who earn $125,000 or less annually free tuition at in-state public institutions and a plan to refinance students' existing loans at lower interest rates. While Republican candidate Donald Trump also recognized the gravity of the issue of student debt, he did not offer any concrete plans for rectifying the situation.

During the 2020s, pressure increased from the American public and some political leaders for the government to implement a broad student-loan forgiveness program. While progressive leaders pushed President Joe Biden to cancel as much as $50,000 of debt for all borrowers, most Republicans voiced their opposition to canceling any amount of student debt. In August 2022, the Biden administration announced its plan for student-loan forgiveness, which included $10,000 in forgiveness for students earning under $125,000 per year and $20,000 for Pell Grant recipients.

However, the announcement was soon followed by a flurry of lawsuits challenging the legality of the plan. On November 10, 2022, a federal judge in Texas ruled that the plan was illegal, declaring that only Congress had the authority to enact such wide-scale debt relief. A few days later, a federal appeals court issued an injunction while it considered a lawsuit by six conservative states, including Nebraska, Kansas, and South Carolina, that charged that the program would severely harm state finances. The rulings effectively blocked Biden's debt-relief program, causing millions of payments to be put on hold. Meanwhile, the Biden administration appealed the rulings. The case was eventually heard by the Supreme Court in late February 2023. At the end of June, the Court ruled to strike down Biden's student-loan forgiveness program. Around the same time, it was announced that federal student loan repayments would restart in October 2023. (After the outbreak of the COVID-19 pandemic in 2020, the US Department of Education had implemented a temporary 0 percent interest rate on student loans as well as a payment freeze as part of its emergency relief package.) The Biden administration also announced a revamped income-driven repayment plan to help reduce the stress on borrowers as payments restarted.

In early 2024, the Biden administration yet again announced a student-loan forgiveness plan. The proposed plan would reduce the amount of student loan debt for over 20 million Americans and would provide complete relief to about 4 million Americans.

Student Debt in Other Parts of the World

According to a 2022 report by Lending Tree, the only country with higher student loan debt averages than the United States was the United Kingdom. In the UK, the average student debt was over US$54,000 in 2022. Like their American counterparts, British students also had problems finding employment after graduation in the early 2000s. Some UK students protested the government, calling on officials to address the rising costs of college and the decrease in available jobs. In 2012, the government responded by adjusting loan repayment schedules based on a graduate's income. Further, British students do not need to begin repaying their debt until their income reaches a sufficient amount to make that feasible. For example, students in England needed to earn at least US$24,367 in 2022 before paying back their loans, and their maximum payment was capped at 9 percent of their income.

In Canada, students averaged about US$20,000 in school-related debt. As in the United Kingdom, Canadian students held protests in 2012 against tuition hikes, but the government did not address their concerns at that time. Like the UK, Canada requires borrowers to submit payments only once they have begun earning a minimum income; in Canada, that minimum was set at US$33,565 in 2022.

Historically, students in China have paid much less for their education. When universities made significant tuition increases in the early 2020s due to reduced funding from local governments, however, the federal government responded by raising the amount of low-interest loans offered to low-income students. The Chinese government also announced national student loan interest would be exempted in 2023.

Other countries, such as Japan and Australia, have also experienced increases in college tuition. A handful of countries around the world—including Germany, Finland, Iceland, Sweden, and Scotland—offer degrees at no cost or low cost, even to nonresidents. However, students in those countries can still accrue student loans for attending private universities.

Bibliography

Delaney, John T. "The Hidden Student Loan Debt Problem." The Huffington Post, 18 Dec. 2014, www.huffingtonpost.com/john-t-delaney/the-hidden-student-loan-debt-problem‗b‗6343800.html. Accessed 23 Mar. 2015.

Denhart, Chris. "How the $1.2 Trillion College Debt Crisis Is Crippling Students, Parents and the Economy." Forbes, 7 Aug. 2013, www.forbes.com/sites/specialfeatures/2013/08/07/how-the-college-debt-is-crippling-students-parents-and-the-economy/. Accessed 23 Mar. 2015.

"Dollars and Sense: A Global Look at Student Debt." CollegeStats.org, CollegeStats, collegestats.org/2013/04/dollars-and-sense-a-global-look-at-student-debt/. Accessed 23 Mar. 2015.

"England Degree Debt 'Highest in English-Speaking World.'" BBC News, 28 Apr. 2016, www.bbc.com/news/education-36150276. Accessed 1 Nov. 2016.

Fowers, Alyssa, and Danielle Douglas-Gabriel. "Who Has Student Loan Debt in America?" The Washington Post, 19 Jan. 2024, www.washingtonpost.com/education/2022/05/22/student-loan-borrowers/. Accessed 8 Apr. 2024.

Howe, Amy. "Supreme Court Strikes Down Biden Student-Loan Forgiveness Program." ScotusBlog, 30 June 2023, www.scotusblog.com/2023/06/supreme-court-strikes-down-biden-student-loan-forgiveness-program/. Accessed 8 Apr. 2024.

Kane, Libby. "Student Loan Debt in the US Has Topped $1.3 Trillion." Business Insider, 12 Jan. 2016, www.businessinsider.com/student-loan-debt-state-of-the-union-2016-1. Accessed 1 Nov. 2016.

Push, Amanda. "Student Debt by Country: College Costs and Student Loans Around the World." Lending Tree, 1 July 2022, www.lendingtree.com/student/student-debt-by-country. Accessed 8 Apr. 2024.

Shear, Michael D. "Biden to Announce Student Debt Relief for Millions in Swing-State Pitch." The New York Times, 8 Apr. 2024, www.nytimes.com/2024/04/08/us/politics/biden-student-loans-debt-relief.html. Accessed 8 Apr. 2024.

Sheehy, Kelsey. "Undergrads around the World Face Student Loan Debt." U.S. News & World Report, 13 Nov. 2013, www.usnews.com/education/best-global-universities/articles/2013/11/13/undergrads-around-the-world-face-student-loan-debt. Accessed 23 Mar. 2015.

"Tuition Costs of Colleges and Universities." National Center for Education Statistics, 2022, nces.ed.gov/fastfacts/display.asp?id=76. Accessed 8 Apr. 2024.

"What Happens If I Ignore My Student Loans?" Fox Business, FOX News Network, 10 June 2014, www.foxbusiness.com/personal-finance/2014/06/10/what-happens-if-ignore-my-student-loans/. Accessed 23 Mar. 2015.