The U.S. Senate’s Joint Economic Committee released a new report regarding student loan debt, and the numbers aren’t pretty: over the course of the recession, the aggregate amount of student loan debt has nearly doubled from $550 billion to $1 trillion. Not only does this make student loan debt the biggest aggregate balance of U.S. non-mortgage debt categories (outpacing credit cards, auto loans, and the like), it also makes it the only type that has continued to rise despite the economic downturn.
This is largely due to the trend of increased college enrollments during recession, as people sought out higher education because of dismal employment prospects. According to the report, two-thirds of graduates have student loan debt with an average balance of $27,200 – 60% of the average earnings of young graduates.
In a state-by-state comparison, Washington’s numbers are a little better than the national average. The average debt in our state is $22,706 – roughly $4,500 below the national average – and a slightly smaller percentage (56%) of graduates have debt.
Likewise, the debt-to-earnings ratio is, on average, 45% – which is 15% below the national average and among the best nationwide. But these (relatively) rosy debt numbers could be better if our state continued to support higher education at the same level it did even a decade ago.
In recent years, state legislators have slashed funding for state colleges and universities – a massive divestment in higher education –cutting funding for the UW in half. In just 10 years, the state cut Eastern Washington University’s funding from $66 million to $33 million, raising annual student tuition from $4,000 to roughly $9,000. Now, for the first time ever, students are footing the majority of the cost of a college education.
The Senate report notes the importance of keeping interest rates for subsidized Stafford loans at the same level, rather than letting them double to 6.8% – which will happen on July 1 unless Congress acts. Similarly, it suggests expanding loan forgiveness programs for those that enter public service, loan restructuring programs for those facing hardship, and the conversion of private loans to federal loans to benefit students.
But while all these options would reduce debt burdens for students, it doesn’t solve the structural issue of students having to take out massive debt to pay for necessary schooling in the first place.
Increased public funding would allows public colleges and universities to return tuition to early 2000 levels, but is also politically challenging during tough economic times. Instead, legislators should think outside the box.
EOI’s “Pay it Forward” model is a creative solution to this problem. Rather than accumulating debt from the outset, students would go to school tuition-free. Upon graduation, they would pay a fixed percentage of income back to their alma mater, which would fund the next generation of graduates.
Certainly there are short-term challenges, but it’s a sensible, long-term approach to funding our state colleges and universities for generations.
The crushing burden of student debt is the elephant in the room, and some think it has close parallels to the housing bubble that took down the economy in late 2008. We need creative, thoughtful solutions to the student debt crisis – why not Pay It Forward?
By EOI Intern Bill Dow