How student loan debt became a crisis
President Biden is under mounting pressure to address the student loan debt crisis with lawmakers urging him to issue blanket forgiveness. However, outstanding loan debt is only one part of the problem as soaring tuition costs and an increasing availability to federal loans continues to drive the crisis.
The student debt crisis so far has led 43 million borrowers to collectively owe around $1.6 trillion. Some of the main drivers of that growing debt are rising tuition costs and increased federal loan availability - further exacerbated by corresponding wage stagnation.
Tuition costs are a crisis of their own, something former Secretary of Education William J. Bennett foresaw decades ago in 1987. Bennett argued in an opinion piece that "increases in financial aid in recent years have enabled colleges and universities to blithely raise their tuitions, confident that federal loan subsidies would help cushion the increase."
A pandemic-related freeze on student loan payments beginning in March 2020 has now been extended five times across two administrations, and lawmakers are calling on the president to again extend the moratorium set to expire May 1. Democratic lawmakers have also argued that not extending the pause is a risky maneuver during a midterm election year.
Rep. Pramila Jayapal (D-Wash.) recently called on the president to cancel up to $50,000 worth of loans per borrower as the costs of food and gas rise amid Russia's invasion of Ukraine, but Jayapal upped the ante on Sunday urging Biden to cancel all student debt.
"Extending the payment pause just isn't enough," Jayapal wrote on Twitter. "We need to cancel every last penny of student debt, once and for all."
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Tackling current outstanding debt may ease the financial burden for millions of borrowers, freeing up income to purchase a car or invest in a home. However, that move would not prevent future borrowers from entering into the same debt crisis.
Collective student debt increased by 144 percent over a 13-year period from 2007 to 2020, moving from $642 billion to $1.566 trillion, according to a 2020 report published by the Bipartisan Policy Center (BPC). During the same period the number of borrowers increased from 28 million to 43 million. The report ties both issues partly to the rise in unemployment caused by the Great Recession beginning in 2007.
The recession led to policy shifts, including an expansion of the Federal Direct Loan program. Before the overhaul, most federal loans were handled by private lenders with the federal government footing the bill in case of a default. But Congress expanded the program in 2010, allowing the government to issue all federal loans using funds from the Treasury Department.
That move proved to be monumental, as it increased access to student loans and created a "vicious cycle of rising tuition and higher debt loads," BPC explained. With more students gaining access to funding, colleges and universities could begin charging higher tuition prices without any serious drops in enrollment. Published tuition rates at colleges and universities rose by 60 cents for every dollar increase in the annual lending limit for Federal Direct Subsidized Loans.
That shift saw near-immediate effects, with BPC's report noting that federal student debt grew to 6.6 percent of the U.S. Gross Domestic Product (GDP) in 2015, compared to only 3.5 percent in 2007.
Meanwhile, the cost of college has doubled in the past two decades and is growing each year by 6.8 percent according to The Education Data Initiative. Data shows the average cost to attend an in-state public school for one year is $25,487. Students attending private schools pay nearly twice as much as the average single-year cost doling out around $53,217. Both numbers cover tuition, fees and additional expenses.
Yet the price of college has far exceeded the corresponding wage increase by more than 100 percent over the past four decades, according to analysis of education data by Georgetown University last fall. Between 1980 and 2019 college fees rose by 169 percent, while wages for young workers aged 22 to 27 went up by 19 percent over the same period.
Sen. Elizabeth Warren (D-Mass.) brought the issue to the fore on social media earlier this week, again calling on the president to cancel student debt, an issue he has previously expressed willingness to consider both early in his presidency and on the campaign trail.
"I graduated from a state school that cost $50 a semester," Warren wrote on Twitter. "Every person in America should be able to go to college without being crushed by student debt."
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