Student Loan Debt Could Top $3 Trillion – Here’s One Reason Why
Student loan forgiveness has been in the news spotlight for two years. With 44 million Americans that owe $1.7 trillion in student loans, critics are calling for schools to be held accountable and for the federal government to “get out of the student loan business.”
State funding for higher education institutions and a low, unchanging minimum working wage haven’t helped matters. State funding has seen a substantial decline for more than a decade. Meanwhile, minimum wages have remained static over the same period.
Rising tuition threatens access and affordability, leaving many students with two options: taking on backbreaking debt to attend university or opting out of going altogether.
Many point to the Great Recession of 2008 as the starting point for the decline in state funding for public two- and four-year colleges. As compared to state funding before the recession, 41 states spent $1,220, or 13%, less per student between 2008 to 2018, according to a 2019 report by the Center on Budget and Policy Priorities (CBPP).
The CBPP report claims that overall funding for colleges in the school year ending in 2018 was more than a staggering $6.6 billion below what funding was in 2008. The per-student funding fell by more than 30% in states like Alabama, Arizona, Louisiana, Mississippi, Oklahoma and Pennsylvania.
At the same time, the federal minimum wage for workers has remained at $7.25 per hour since 2009, despite the demand for it to be raised. Although states and municipalities are permitted to set their own minimum wage rates — which would take precedence over federal minimum wage rates if they are higher — 20 states still use the minimum $7.25 wage rate. Students have no purchasing power when the cost of living is so incompatible with wages.
As a result, tuition prices have soared well beyond the inflation rate while state funding has declined, and student and household incomes have remained unchanged over the years. According to the College Board, average tuition prices have more than doubled at both public four-year colleges and private institutions over the past 30 years. Over the past 10 years, the average tuition increase has been $2,708 for a four-year public college, claims the CBPP in its report.
Although the Biden Administration has eliminated billions in student loan debt and has further extended loan pauses, universities and colleges have rarely been held accountable for the massive debt crisis the nation is experiencing now.
“The federal government should get out of the student loan business,” says George Washington University economics professor and former chief economist at the Department of Labor Diana Furchtgott-Roth. Because there seems to be no limit on what students can borrow, “there is an incentive to drive up tuition” Furchtgott-Roth adds. “Schools can charge as much as they want.”
Without a clear plan for widespread loan forgiveness and without increases in state funding for education and the minimum wage rate, the only way is up for federal student loan debt.
“Given how linear the growth in student debt is, it makes these events easy to predict,” says education expert Mark Kantrowitz, who estimates student loan debt could top $3 trillion over the next twenty years.
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