There is a great misunderstanding about who student loan debt affects and how it affects the economy. (Photo by Andrew Roth, Michigan Advance)
When President Joe Biden announced last week a student loan relief plan, many Americans reacted as though he had encouraged the overthrow of the government or stolen classified documents.
Biden announced the U.S. Department of Education will cancel up to $20,000 in debt for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. Pell Grants, for the uninitiated, are a staple of federal financial aid and given out to students displaying “exceptional financial need.”
I was surprised to see posts from lifelong friends on social media decrying the plan for its unfairness — especially from ones I feel certain went through school with the help of Pell Grants. Several wrote something along the lines: “I chose a college I could afford even though I was accepted at better and pricier ones, I worked my way through college, and it’s not fair these entitled kids don’t have to pay back student loans.”
Let me set the record straight on a number of issues.
The University of Tennessee at Knoxville used to be a cost-friendly way to obtain a college degree. I don’t come from a family of great means, and I used to joke that my parents said I could go to any college I wanted to, as long as I got in-state tuition prices.
When I started at UT in fall 1982, my quarterly costs, including tuition, room and board, ran around $1,000, give or take. I, like many other students, attended three quarters with the fourth being summer school, when I took time off for full-time work. Thus, a four-year degree cost just over $12,000. I worked more than 50 hours a week summers in a tire store, not a glamorous job, but one that paid enough that it enabled me to minimize work during the academic year and not have to take out loans.
For the 2022-2023 academic year, tuition alone at UT is more than $13,200. Add on to that room and board and the current cost is $25,300, for a four-year cost of over $100,000. That’s a 670% increase in in-state costs since my peers and I began college.
Even accounting for increases in salaries adults have gained in that period, there is no way my family and I could have afforded UT at today’s prices without taking out loans and big ones at that.
What’s more, there is a great misunderstanding about who student loan debt affects and how it affects the economy.
Prior to my work with the Tennessee Lookout, I spent several years analyzing information from the Federal Reserve Bank. In the course of that time, I figure I wrote about 125 pieces, and the only analysis I remember is a series I wrote on student loan debt: I was both shocked and fascinated during the research portion of my work. Given last week’s uproar, I decided to revisit the series and lay out some cold truths.
When I last studied the topic in third quarter of 2019, Americans owed more than $1.9 trillion in student debt. And the debt isn’t owed by, to use Texas Sen. Ted Cruz’s phrase, “slacker baristas who take seven years to finish college.”
On Aug. 26, the American Association of Retired Persons (AARP) reported that as of the end of 2020, Americans ages 50 and over owned almost a quarter of the total student loan debt, or about $336 billion.
That’s for several reasons, including a willingness to help children and grandchildren pay for their education, as college is still largely viewed as a benchmark for achieving success — despite the fact that wages have not increased to keep pace with the ballooning cost of a traditional four-year education.
As a result of these higher balances and longer-duration loans, parents and grandparents who borrow or cosign often sacrifice their own financial security in retirement. Increasingly, borrowers are defaulting on their loans and facing wage garnishment and offsets of their federal tax refunds or Social Security payments.
In some cases, those in the 50 and up contingent are still paying off their own student loans, as repayment periods required to pay off the debt are longer today—now often 20 or 25 years, double the repayment period of prior generations. Others have incurred debt since their first college foray, having returned to school to gain new skills or train for the changing job market.
Millennials and Gen Xers also said their student loan debt has prevented or delayed their ability to save for their children’s education. This inability to save increases the likelihood they will need to borrow when the time comes for their children to attend college, thus perpetuating the intergenerational student loan debt cycle.
Meanwhile, nationally, state and local funding per student for higher education has decreased and the Americans hurt the most by higher school costs and stagnant wages are people of color.
According to Federal Reserve data from the third quarter in 2019, the average student loan balance is highest in Black-majority areas, at more than $37,000. This is especially remarkable when we consider that the average income reported on tax returns in these areas was $38,000, implying very high debt-to-income ratios for student loans alone. The average balance for Hispanics, though lower than the average balance in majority-white areas, is about $29,000.
One of the Tennessee politicians criticizing the loan forgiveness program is U.S. Rep. Mark Green, a Republican.
On Thursday, Green tweeted, “Tennesseans who worked their butts off to pay off their student loans shouldn’t be strapped with someone else’s student loans.’’
I find the comment particularly rich, as Green graduated from the U.S. Military Academy at West Point, where his education was paid for by taxpayers. There is no direct cost to attend West Point: Graduates make a commitment to serve in the military for five years of active duty and three years of reserve duty, similar to the four years of active duty ROTC scholarship winners also sign up for in exchange for four years’ tuition payment, the latter of which does not cover room and board.
It’s easy to throw stones at those mired in debt, and to attack the government for what amounts to a drop in the country’s budget bucket for supplying help to so many Americans. But if the government doesn’t work to help Americans, what good is it?
This column was originally published in the Tennessee Lookout.
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