Student loan debt has seen exponential growth over the last several years, surpassing all other forms of consumer borrowing and placing unmanageable payments on millions of borrowers.
Some have advocated for blanket student loan forgiveness; however, this would be extremely regressive. Politicians should instead adopt policies that treat investing in human capital in the same manner as investing in businesses, providing tax incentives and accounting gimmicks to lower before-tax student loan costs.
Cost of Education
Higher education should provide access to middle-class life; yet for many of its borrowers it becomes an additional burden. High payments and ever-increasing balances keep these borrowers from investing in themselves or building wealth.
College tuition increases have skyrocketed more rapidly in the U.S. than most other wealthy nations, exacerbating economic inequality by diminishing opportunities available to younger generations and exacerbating racial wealth disparities.
Young adult women and black adults, in particular, are more likely to carry student debt than their white and male counterparts, which coincides with being more likely to work in less lucrative sectors of the economy. Furthermore, due to its resounding failure, Public Service Loan Forgiveness program applicants (97 percent have been rejected so far). Teachers also carry huge student loan burdens; according to National Education Association statistics they carry an average outstanding balance of $68,000 in student debt.
College degrees continue to deliver an attractive return on investment for most graduates, yet can leave borrowers saddled with heavy debt loads. While financial analysts laud education’s benefits, millions of borrowers struggle with breaking free of their debt burden. Loan calculators, refinancing options, income-driven repayment plans and loan calculators may help reduce monthly payments; however, low-income families often bear greater costs and interest rates than others.
Studies have revealed that debt-burdened borrowers tend to spend less, which slows economic growth in an economy driven by consumers. Furthermore, such debt may cause life milestones like marriage and having children to be delayed as a result of the financial strain they feel from debt-related financial strain. While various student loan solutions have been proposed – from lowering tuition rates at public colleges to helping students maximize scholarships – blanket debt forgiveness has been widely criticized as being regressive as it favors high-income borrowers over those from lower-income backgrounds.
Student loan debt can prevent people from making significant life decisions like purchasing homes and getting married, saving for emergencies and retirement, starting businesses or becoming self-employed due to fluctuating incomes and being unable to afford loan payments. It also has an adverse impact on credit scores which in turn discourage many borrowers from starting businesses due to fear that payments won’t be affordable enough.
Experts generally recognize the rising cost of education is a serious problem that must be addressed, yet some remain concerned that widespread policies to alleviate debt burdens disproportionately benefit well-educated white collar workers and increase wealth inequality racial. Some advocates are pushing instead for targeted programs designed to ease repayment burdens for low income borrowers through income-based repayment plans or loan forgiveness options that enable lower monthly payments for these low income borrowers.
Credit scores are three-digit numbers used by lenders to assess whether or not you represent a good risk when it comes to lending money. Student loans can significantly alter your debt to income ratio and cause your score to decrease; it is therefore vital that they are paid off as quickly as possible in order to protect their finances and avoid potential problems in the future.
Missed student loan payments could see their balances balloon as interest accrues, and while some borrowers qualify for government’s payment pause option, those that do not may still see their accounts reported to credit bureaus and experience some minor adverse impacts to their scores.
While experts differ on whether broad student loan forgiveness should occur, most agree that future borrowing must be carefully managed to prevent imbalances between schools and students. This involves improving financial literacy education as well as helping students understand the true cost of an education before taking out student loans.