Student loans
Student loans are financial aids designed to help individuals cover the costs of higher education, including tuition, books, and living expenses. They can be utilized for a variety of educational programs, ranging from bachelor’s to doctoral degrees, as well as vocational training. These loans may originate from private institutions, government sources, or a combination of both, and eligibility requirements often depend on income levels and family financial status. In the United States, the student loan process typically begins with the submission of the Free Application for Federal Student Aid (FAFSA), which assesses a student's financial need and potential awards.
The growing burden of student loan debt has emerged as a significant issue, particularly in the U.S., where total student loan debt reached $1.59 trillion by 2021, affecting millions of borrowers. This crisis disproportionately impacts marginalized communities, highlighting racial disparities in borrowing and repayment. In response to rising debt levels and calls for reform, recent political discussions have centered on student loan forgiveness, with various proposals introduced to alleviate financial pressure on borrowers. Although some measures were taken during the COVID-19 pandemic, legal challenges have complicated efforts for broad debt relief. As the conversation continues, student loans remain a crucial aspect of higher education financing and economic mobility.
Subject Terms
Student loans
In many countries around the world, student loans are a way for individuals to borrow enough money to pay for college. Such loans can be used to fund an education at virtually any university in the borrower’s home country and can be applied toward the pursuit of bachelor's, master's, and doctorate degrees. In some cases, they may also be applied toward two-year degrees at community colleges and vocational institutions. Loans can originate with private lenders, the government, or a combination of the two. Eligibility requirements for student loans vary from country to country, and are often based on the income of a prospective student and/or their parents along with the student’s current legal status.
Brief History
In the United States the student loan process typically begins by filing the Free Application for Federal Student Aid (FAFSA). This application has strict deadlines for submission each year. It determines eligibility for programs like the Pell Grant, Federal Work-Study Program, and the Federal Supplemental Educational Opportunity Grant along with student loans. To do so, it requires an accounting of expected educational costs across the upcoming school year, and information about the student’s resources. Students who are under a certain age or do not earn enough money to be considered independent will need to list their parents’ income as well as their own.
The completed FAFSA is reviewed by financial aid professionals. The prospective college student then gets a letter detailing the award (grants and loans combined) for which he or she is eligible. The award is typically expressed as the amount of need minus expected student family contribution; the amount left over is the amount of the loan that the student can receive. Of course, the student does not need to take a loan for that entire amount because grants and scholarships may cover some of it. For graduate students, research or teaching assistantships are another source of funding that can be considered.
When an individual’s eligibility for student loans is established, the student signs the award letter affirming exactly how much they will be borrowing. The award letter is processed and student loans are disbursed through the college the student attends or will be attending. This allows the college to immediately deduct the cost of the current quarter’s tuition and fees, disbursing the remainder of the award by check or direct deposit into the student’s account. That money is accessible for things like books and school supplies.
Although income is a primary determinant for student loan eligibility, other factors do figure into the process. For example, each student needs to maintain satisfactory academic progress to stay eligible. If grades fall below a certain level, he or she risks becoming ineligible for further financial aid. In practice, this usually plays out as a warning after one quarter of low grades, coupled with a requirement of higher grades and an improved cumulative GPA the next quarter.
Student Loan Debt Crisis Emerges
In the first quarter of 2014, total student loan debt in the United States increased by $31 billion, hitting a record high of $1.1 trillion, according to the Federal Reserve Bank of New York. The debt continued to mount over the next several years, reaching $1.56 trillion in 2019, with 11.5 percent of student loan balances delinquent by ninety days or more. Furthermore, 60 percent of those with student loan debt did not expect to pay off their loans until they were at least forty years old. A 2017 report by Citibank declared this student loan crisis "eerily reminiscent" of the subprime mortgage crisis of 2008. Analysts anticipated that, if no steps were taken to curb student loan debt, the debt would have a long-term negative effect on the US economy, as student loan payments siphon off income that might otherwise return to circulation and delay major purchases such as houses.
Despite increasing awareness around the issues of student loan debt and college affordability, national student loan debt in the US continued to grow into the twenty-first century, increasing by 5 to 7 percent each year between 2010 and 2020. By 2021, Americans owed a total of $1.59 trillion in student loans, with each borrower's average student loan balance equal to $39,487. Many analysts also noted how the student debt crisis was marked by racial disparities, with Black borrowers taking out loans at higher rates and owing more per borrower than any other racial demographic.
Student Loans Today
Student loans remain a common way to pay for higher education, particularly for those in lower socioeconomic classes who need them the most. They not only help low- and middle-income individuals to receive a higher education, but they also allow those individuals to make a better contribution to their country’s economy. For these reasons, many believe student loans are an astute investment by the government in favor of its citizens.
However, rising student loan debt became a significant political issue in some countries, particularly the US, during the first decades of the twenty-first century. In the US, this rise in debt occurred alongside rising tuition costs at colleges and universities throughout the country. In the early 2000s and 2010s, some politicians introduced legislation to address the issue of college affordability, including Vermont senator Bernie Sanders's College for All Act and Senator Brian Schatz's Debt-Free College Act. Other analysts suggested that greater access to information on college choices and financial responsibility for students and parents could prevent more student debt.
In 2020, amid the onset of the global COVID-19 pandemic, the US government suspended student loan payments in an attempt to help borrowers navigate the recession brought on by the pandemic. This payment pause began during the presidency of Donald Trump and was extended multiple times during the presidency of Joe Biden, who won the 2020 US presidential election and took office in January 2021.
While student loan payments were suspended, conversations about student loan forgiveness gained significant momentum. Before he won the 2020 election, Biden discussed student loan forgiveness as part of his campaign platform. During the first year and a half of his presidency, he faced pressure from a number of activists and Democratic politicians, including Sanders and Massachusetts senator Elizabeth Warren, to forgive up to $50,000 in loans per borrower.
Responding to political pressure, in August 2022 Biden announced $10,000 in student loan debt relief for each borrower, with some low-income borrowers receiving an additional $10,000 in relief. He also extended the pause in student loan payments through the end of 2022. Although student loan forgiveness had attracted broad popular support by that time, Biden's plan also attracted criticism from both the right and left. Some Democrats argued it did not go far enough in helping borrowers or addressing racial disparities in the student debt crisis, and many Republicans criticized what they viewed as a government handout. Others also pointed out the plan's failure to address high tuition costs in the US, which remained a major issue. Polls taken around that time suggested that 51 to 60 percent of Americans supported student loan forgiveness.
Biden's student loan forgiveness plan generated a number of legal challenges, including several lawsuits, which placed a temporary freeze on Biden's loan forgiveness plan. The legal challenges over Biden's loan forgiveness plan eventually made their way up to the Supreme Court, which heard arguments regarding two separate but related cases, Biden v. Nebraska (2023) and Department of Education v. Brown (2023), in February 2023. While the court ultimately found that the plaintiffs in Department of Education v. Brown did not have legal standing and dismissed the case, in Biden v. Nebraska the court ruled in a 6-3 decision to strike down Biden's loan forgiveness plan, arguing that the Department of Education did not have the authority under existing legislation to forgive $430 billion in student loan debt.
After these cases were decided at the end of June 2023, the Biden administration began to explore other avenues for loan forgiveness, including a revamped income-driven repayment plan to help reduce the stress on borrowers as payments restarted. Further, the administration touted the accomplishments it had made in loan forgiveness through existing programs, such as the Public Service Loan Forgiveness (PSLF) program. That program, originally passed in 2007 to provide student loan relief for workers in the nonprofit and government sectors, received significant improvements under Biden, leading to nearly one million borrowers benefiting from the PSLF by 2024.
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