Student Debt: The Trillion Dollar Problem
By: Sandra Slattery
As the White House staff is abuzz with preparations for a change of command as well as the harkening of a new era, so too are lawmakers preparing to tackle the debilitating issue of massive student debts. Students and graduates of the years following the millennial generation have faced a devastating double-whammy of ever increasing student loans, decreasing rates of loan repayment and hobbled job prospects.
It is a difficult issue with nuanced facets and varying levels of solutions. One of the suggestions that trends well on Twitter and Reddit is the idea of cancelling all student debt. Some proponents of total student loan debt erasure argue that wiping out the debt across the board would infuse new life into the economy and provide much needed fiscal relief to students and graduates.
Senator Bernie Sanders is one of the leading champions of complete student debt erasure and outlines on his website his plan for cancelling all student debt. Among key points such as guaranteeing tuition and debt-free public colleges, Sanders also wants to ambitiously “cancel all student loan debt” adding up to approximately 1.6 trillion dollars.
While not many would argue against the fact that students and graduates are faced with a serious budget dilemma, cancelling all student debt does not address some of the issues that got us here in the first place such as ballooning college tuition.
According to the National Center for Education Statistics, the average total tuition for the 1984 school year (adjusted for inflation to the 2017-18 dollar) was around $10,704. By the 2017-18 school year, that average tuition had inflated to $23,835. That is an increase of 123% in a matter of decades. Remember, these figures are already adjusted for inflation.
Meanwhile, in 1984 the inflation-adjusted median salary in the U.S. was $52,679 whereas in 2018 the median salary was $64,324 - only a 22% increase in the same time period. College suddenly became so much more expensive, while wages stagnated. A free market proponent would tell you that prices are an interaction of supply and demand, and thus blame the demand for higher education on the rising prices.
One thing not often mentioned is the fact that university and private college tuition is not dictated by any natural economic supply and demand curve. In fact, because of the generous federal loan limit, colleges hike prices. Who is to fight them? Take this hypothetical example. In a simplistic supply and demand situation, Merchant Alvarado offers to sell me a table for $10. Merchant Beth undercuts Alvarado to sell me the table for $9. Obviously, other factors notwithstanding, I decide to buy from Beth.
However, in the case of the federal loan and universities, the situation is more like this. Let’s say my mom will loan me up to $15 for a table. Merchants Alvarado and Beth both hear about this, and suddenly both are charging just around $12. Why did the price go up? Well, they heard that my mom is going to help me for as much as $15, so suddenly I can afford more than just $10. Why would they charge less? And that is exactly what is happening now.
The average amount of student loan debt that students are graduating with was just over $30k in 2019. The federal student loan limit is $31k. Coincidence? I think not. Senator Sanders’ plan for student debt relief is ambitious and sounds like a much needed salve for an ever-increasing problem, but the tremendous amount of aid would not fix the underlying issue of unmitigated and unchecked college prices.
Unfortunately, tackling the politics of university boardrooms and soaring college prices is tricky and doesn’t have the hash-tag appeal of cancelling all student debt. A reasonable solution would be to cap the rate of tuition increase to that of the median income rate increase or perhaps the dollar inflation rate.
There is very little justification for the average rate of tuition hike, and as students are increasingly pressured into obtaining higher levels of education to even have a chance at a better job prospect, so too does the need for federal mandates of capping public university tuition. We must demand accountability of our college boards and see to it that tuition prices are reasonable and not arbitrarily inflated.