There is a tendency among elite opinion makers to believe that the debt accumulated upon graduation from college is “good debt” which is not problematic because, as it is believed, those with a college degree tend to earn enough money to pay off their debt over a lifetime. Student debt is meant to be an equalizer – a way for students to access credit in order to earn a degree that will give them an equal chance to enter the middle class and achieve the American dream. Unfortunately, like many expert platitudes, this claim is based on fantasy, not fact.
In fact, this is only true for some students, those who were quite wealthy to begin with. University is certainly worth the cost, but the fact that it currently burdens poor and middle-class students with student debt actually prevents them from participating in the wealth creation processes that previous generations have benefited.
The debate over student debt tends to focus on those dropping out of school, but this masks that a significant portion of those with student debt struggle to repay their loans on a timely basis, delaying (sometimes in perpetuity) their entry into the middle class. . New York Federal Reserve Research find that many borrowers still haven’t paid off their student loans until their forties and fifties.
For students who have just left school, up to 15% of their federal student loans default within three years of graduation, and default rates for student loans have continued to increase during and after the recession, even as defaults on all other forms of lending, including mortgages, home equity loans, credit cards and auto loans, have declined.
The inability to repay the debt is very important, as these students are more likely to take any job offered to them. repay their loans than invest in themselves. Search for Demos find that if “current borrowing trends continue, student debt levels will reach $ 2 trillion by 2022.” Another report concludes that “an average student debt for a two-headed household with singles results in a loss of lifetime wealth of almost $ 208,000”. Given that inequalities in wealth returned at the heights of the Golden Era, this find should be disturbing.
The problem is that, rather than being seen as a social investment, college education is increasingly seen as a commodity, something that is accessible for the rich, but out of reach for the poor, and more. in addition, the middle class. Indeed, student debt is strongly correlated at income level, the richest having the lowest amount of debt as part of their income (see table).
Poor and middle class students are much more likely to take out student loans – in fact, nearly 9 in 10 graduates who receive Pell scholarships also had to borrow to finance their degree, compared to 53% of graduates who did not receive Pell scholarships. These students will spend more time repaying their debts and less time saving for retirement or other needs, thus creating a vicious cycle of worsening wealth inequalities.
There is a more tenuous, but equally important, way in which rising inequality has increased student debt among the poor and the middle class – through the political system. Recently, Martin Gilens and Benjamin Page set the internet on fire with their assertion that “Economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while average citizens and mass interest groups have little or no independent influence. This observation is corroborated by Larry Bartel, Dorian Warren, Jacob hacker, Paul Pierson and Kay Lehman Schlozman who has all recorded similar results.
Although this control by elites and corporations over the political system is bad a priori, it is of particular importance in the case of education. In their study of the political attitudes of the richest 1%, Larry Bartels, Benjamin Page and Jason Seawright find that the richest 1% have different political priorities than the average voters. For example, while 78% of the general public agrees with the statement: “The federal government should make sure that anyone who wants to go to university can do so,” only 28% of the rich are agreement. The elites are also much less likely to agree that “the federal government should spend whatever is necessary to ensure that all children have very good public schools they can go to”, by a margin of 35% to 87% . They also believe that reducing deficits is a higher priority than funding education, and believe that education is a lower spending priority than the middle class.
It helps explain why states have cut spending on education while reducing taxes– those who have the most influence on politics have little to gain from public education, but much to gain from lowering taxes. It also explains why very little national attention is given to community colleges, which educate 4 in 10 students and which are disproportionately affected by state budget cuts. Research of Greg Duncan and Richard Murnane shows that the rich spend far more to supplement their children’s income than the poor, meaning that state-level cuts have a devastating impact on the poor (see graph).
Robert Hiltonsmith and Tamara Draut find that in the aftermath of the Great Recession, 49 states (all except North Dakota) reduced their spending on higher education, and state spending on higher education hit an all-time high following the recession ( see graph). This essentially results in higher tuition fees. Draut and Hiltonsmith find that “Nationally, average tuition fees at 4-year public universities have increased by 20% in the four years since 2008, after increasing by 14% in the previous four years . Tuition fees continue to rise as a proportion of median income, meaning that all families except the very wealthy have to take on significant debt to pay for their education. This, in turn, means that recent graduates are repaying loans rather than building wealth.
University is an important path to the middle class and one of the most effective ways to tackle inequality. As it becomes more and more difficult for students to access an education, this closes the gateways to upward mobility. The effect is particularly powerful for blacks. A recent study by Bhashkar Mazumder find that “blacks have experienced significantly lower upward intergenerational mobility and significantly greater downward intergenerational mobility than whites.” He finds that this gap is narrowing among those with 16 years of schooling.
A simple way out of the debt for diploma system is for the government to move from a loan policy to a subsidy policy. There is no reason why college education should be primarily funded by expensive, high interest loans. In the past, the Pell Grants helped the poor and the middle class to attend college, but the Pell Grants are an increasingly smaller percentage of the cost of college (see graph).
At the bare minimum, the government could allow students to refinance their debts at a lower level; most other countries have policies that allow students to pay off their debts as part of their income and eventually write off the debts. In Britain, students only start repaying their loans after they find a stable job, then they pay in proportion to their earnings. Australia similarly ties the cost of loan repayment to the graduate’s income, and the loans themselves are interest-free. In Denmark, education is considered a people’s right and a government investment, and is therefore free. Some students are even offered a stipend by the government to cover costs. Norway and Sweden have a similar systems of Higher Education. The United States has attempted to implement loan repayment programs that allow students to pay according to income, but the default federal student loan repayment plan is still an arbitrary 10-year period – a period where borrowers tend to earn less and where saving for retirement might benefit them the most. But signing up for these plans has been slow, possibly due to the fact that our system is unnecessarily complex and opaque (i.e., there are over 9 different repayment plans one can choose from for student loans).
Education, and especially college education, is a path to the middle class, and most Americans think it’s more important than ever. But as society becomes more unequal, access to debt-free education becomes increasingly difficult.