t’s September and the freeze on student loans thanks to Covid-19 has come to an end. Time to get back into the swing of those monthly payments on that $40,000 loan you took out for your Business Degree. Over the last decade interest on student loans has hovered between 3.4% and 7.9% depending on the type of loan and location of loans. Interest rates have been on the rise for the last five years. A common debate surrounding the topic of student loans is that interest rates should be dropped to provide relief for the millions of low-income borrowers. Should The Government Consider Lowering Interest Rates To Help With Student Loans?
Is It Really The Student Loan?
Student loans are one thing, but the tuition fees are another thing. Although interest rates are a clear problem that’s only getting worse, the main culprit to the high amount of student debt is directly related to the high cost of college tuition and the additional fees that come along with it. Students are basically left with two solutions if they are strapped for cash when deciding about post-secondary.
1. Not attend post-secondary at all
2. Attend post-secondary and risk being in debt for an unpredictable length of time after the fact
It’s unfortunate because according to a recent Lumina Foundation poll, the majority of respondents without a certificate or degree beyond high school claimed they would feel more secure in both their job and their financial future if they did have such education.
While feeling comfortable is one thing, a degree no longer has as much clout as it once had. Tuitions rise, increasing the cost of obtaining a degree yet we aren't seeing degrees becoming more valuable. In fact, we see the opposite. Elon Musk commented that education is irrelevant for potential employees of Tesla.
Trump’s Not Helping The Situation
At the beginning of 2020, President Donald Trump released a budget for 2021 that would slash many of the programs aimed at helping borrowers. In a nutshell, student loan spending would be cut by $170 billion in the plan called “A Budget For America’s Future.” This plan would reduce the number of repayment options for loan takers and potentially nix the public service loan forgiveness program. This plan has been in place since 2007 and allows not-for-profit and government employees to have their federal student loans canceled after 10 years of on-time payments.
Well, it’s no surprise that Trump’s announcement hasn’t sat well with voters, but let’s take a look at the actual numbers. A recent PEW poll found that 80% of Americans are in favour of the government making it easier for those with student loans to repay their debt. In addition, another poll discovered that 60% of voters would support a plan to cancel ALL existing student loan debt - that’s more than half!!
So, What Will It Take To Solve The Student Loan Crisis?
Well, it’s safe to assume we’re quite a ways away from coming to terms on how this crisis will actually be solved, but a first step is to define what the crisis we’re trying to solve actually is. Is it the staggering amount of student debt? The rapidly rising cost of tuition? Is it the interest being collected on student loans? The high default rate on student loans? Or all of the above? For many, the problem is the accumulated student loan debt. It’s shocking that student loan debt exceeds accumulated car loans and even credit card debt. FYI, this amount is $1.6 trillion, so yeah, it's definitely a crisis and according to economists, it’s only going to get worse.
Economists project an accumulated student loan debt of $2 trillion by 2021, at a growth rate of 7% a year, as much as $3 trillion or more by the end of the next decade.