The amount of student loan debt in the United States has reached stratospheric proportions, with 43 million Americans bearing an estimated $1.5 trillion in student loan debt from federal loans and $119 billion in student loan debt from private lenders. The graduating class of 2019 had an average student debt balance of $28,950 when they left school. For some borrowers, the financial weight of student loan debt proves to be easier to bear than it is for others in the same position.
What are the Root Causes of the Crisis in Student Loan Debt?
President Joe Biden announced via Twitter on August 24, 2022, that qualifying borrowers will have their outstanding federal student loan debt reduced by $10,000 and by $20,000 in the case of beneficiaries of federal Pell Grants. Additionally, Biden extended the moratorium on payments and interest on federal student loans until December 31, 2022. For the academic year 2020-2021, the entire cost of tuition, fees, and room and board at a public four-year university for students who were not residents of the state the institution was located in was around $43,280.
Students attending four-year private institutions saw their tuition and fees increase to $54,880. According to Sallie Mae's 2020 How America Pays for College Report, despite having a 529 college savings plan that may assist with paying college fees, just 37% of families utilise these plans. 5 Instead, many households resort to taking out student and parent loans to finance their children's education. The cost of attendance at the university was reduced by 24%, thanks to financial aid and loans.
On August 24, 2022, the government of President Joe Biden introduced a new plan to repay federal student loans. According to this plan, the maximum monthly amount is capped at five per cent of one's monthly salary. Provided the initial sum of the loan was less than $12,000, then any residual debt you have after ten years will be forgiven if you meet the requirements.
Specific Borrowers More Affected by the Debt Crisis
The financial burden of student loan debt may be significant, especially if it prevents borrowers from pursuing other financial objectives or if the borrowers' credit rating suffers due to their delinquency. However, not every borrower experiences the same stress level brought on by their student loan debt.
Women Feel the Student Loan Debt Pain
An American Association of University Women (AAUW) investigation found that women are responsible for about two-thirds of the outstanding student loan debt in the United States, which amounts to nearly $929 billion. Women have a greater propensity than men to take out student loans to fund their education, and they do so at rates typically higher than males. That, in and of itself, is not inherently bad; nevertheless, the actual student loan debt crisis occurs when those same female graduates have to begin repaying their debts.
Women may find it more challenging to achieve financial success due to their slower debt repayment rate. Consider retirement savings. The 18th Annual Transamerica Retirement Survey found that compared to women, twice as many men feel highly secure about their ability to retire with a good lifestyle. The typical amount of money that women have stashed away for unexpected expenses is $2,000, whereas the median amount that men have saved is $8,000. The projected median retirement savings of working males is $76,000, whereas the anticipated median amount of working women is $23,000.
Minorities Also Bear the Brunt of Student Loan Debt
Many people, not just women, share the issue with student loans. The National Center for Education Statistics found that 71% of black students use federal loans to pay for their education at four-year universities. In comparison, just 56% of white students do the same. Students of Hispanic and Black descent have a greater propensity than white students to graduate with more significant debt. They also have a greater propensity to default on their student loans.
The Broader Economic Impact
The burden of student loans may be felt not only by the individual borrowers who take them out, but it also has the potential to have a wide-ranging effect on the economy. One research found that the average delay in homeownership caused by student loan debt for borrowers was around seven years. This is even though the housing market, for example, has made a significant comeback after the financial crisis of 2008. That may cause supply and demand to swing out of balance, which might lead to lower property prices if more houses come up for sale while there are fewer buyers browsing for homes.
