David Osei
Radford Skudrna
ENGL101A Section XU13
7/29/18
Student Loans: An American Epidemic
The beginning of college education in the U.S is an exciting transition for many high school seniors. Yet unfortunately, my senior year experience did not make the transition easier. SAT’s plus college applications led to stress or as many call it “senioritis”. It may sound silly, but honestly, my high school career really flew by. Before taking the SAT’s and beginning the college application process, I was sure I would score a 1600 and receive a full ride to the university of my dreams. In reality, I took the SAT’s twice and I dreaded the stressful process, but that's an essay for another day. After the SAT’s and college application process was over I was relieved. My acceptance into the University of Maryland was the grand prize that I celebrated with my family. As a first-generation college student, this meant many calls, lectures, and congratulation wishes. All the excitement filled our minds causing us to forget how we would pay this high price tag. When FAFSA concluded that I was only “in need” of about 2,000 dollars, way less than in reality, I felt abandoned. Along with many other students across the country, I searched for scholarships, grants, and anything that could help me financially. After coming to terms with the harsh reality of it, I was left with no other option than to take out a student loan. Student loans have seemed to become synonymous with the word “college” in the United States. They have greatly benefitted and allowed students across the nation to receive higher education, even when the price tag is heavy. But many seek to find the answer to one question. Is the student debt crisis causing more harm than good in today’s economy?
This paper will explore the benefits of higher education while creating a proposal to the department of education, as well as the federal government regarding the student loan debt crisis. In order to control the student loan debt from destroying the economy, there must be some reform. To provide clarification for my argument, I will first address the benefits of higher education on the nation. I will then move on to the history of student loans in the U.S, and its damaging effects on the economy compared to the recent housing crisis. While defining terminology, specifically those key phrases related to economics. I will then use arguments that describe the current flaws in today's school system while proposing another solution that is overlooked today. From there, I will state my desired action and provide two current arguments that add support to my plan. Throughout the paper, I have chosen not to talk about one institution or branch of government. Instead, I plan to address universities across the nation, and the government as a whole. This will allow my essay to appeal to interested readers, students, economist, and government leaders in hope for reform.
Receiving higher education brings benefits to both individuals and to society as a whole. Higher education allows one to have better career opportunities, to make more money in the future, and creates a higher chance of job security. With these benefits comes more job satisfaction and higher quality work in the workforce. This leads to happier, healthier lives, bringing communities, states, and eventually, the nation closer together. As a result, it increases the purchase of more assets, investments in businesses, schools, and more institutions that will better our economy. To get to this level requires college and university degrees. But with it’s raising tuition, the need for student loans rises.
Student Loans have not been around for too long now, but its rate of increase does not seem to reflect this. The article, “A Look Into the History of Student Loans” does a great job of breaking down its history until current times. Starting in 1840, the first student loans were offered to students attending Harvard University. Because few attended college at this time, schooling was almost free. Veterans made up half of those attending college at the time (“A Look Into the History). The Morrill Act of 1862, enabled colleges to be created by states on federal lands so that higher education could become available to Americans in every social class. In 1958 under the National Defense Education Act, federal student loans were awarded to high school students proficient in math, science, engineering, foreign language, and even aspiring teachers. These students were offered grants, scholarships, and loans (“A Look Into the History). The Higher Education Act established in 1965, provided “Educational Opportunity Grants” and allowed banks and private institutions to provide government loans to students. In 1972, the Pell Grant was created to help students “in need” to attend college. Just 8 years ago in 2010, the Obama administration eliminated the Federal Family Education Loan. This required all new federal loans to be Direct Loans. Because of this, private lenders began offering student loans to students independently from the government. As you can see the U.S has done many things to help the increase of higher education. But could these efforts be destroying the country as well?
Over the past decade, student loan debt in the U.S. has tripled, (“The economics of education”). It has passed auto and credit card debt and is only second to the mortgage or housing debt (Friedman). There are currently 44.5 million students that collectively owe almost $1.5 trillion (McGurran). This occurred after the federal government decided to subsidize the student loan program, causing tuition prices to escalate. This is an issue that does not only affect students but the economy and society as a whole. Because the median income of college graduates continues to stagnate, and college tuition increases, if this issue is not solved, it could end in an economic bubble ("Student debt."). An economic bubble is a trade in a resource at a price that exceeds its true value. This rapid increase in debt is similar to when government agencies created subprime mortgages, which resulted in the housing crisis. The housing crisis was a nationwide banking emergency that contributed to the U.S. recession of 2007 – 2009. After the housing bubble, there were declines in house prices, foreclosures, and devaluations. Because of the racial gap, this gave white families 20x more wealth than Blacks and Latinos ("Student debt."). This could be the exact case with student loan debt if nothing is done. For this reason, I would like to be informed and inform others about its benefits and drawbacks. This is an issue that does not only affect students but the economy and society as a whole. Students do not benefit from this rise in debt. The increase in college tuition is sadly not leading to better resources and information in the classroom. Although colleges and universities set high tuition prices, there has been no increase in the “quality of education” (Merino). The money seems to go into services that may benefit the student, but do not enhance the curriculum. As a result, many students are spending more (and borrowing more) of whatever future extra earnings their college educations will bring. In effect, this will slow down the purchase of homes, cars, and other assets that help in economic growth since recent graduates are so tied down with debt.
The student loan crisis seems to continually remain on the headlines of local and national news sources. With such a pressing issue, why hasn't there been much reform to its effects on the economy? The problem is that if the debt continues to rise, it could end in an economic crisis, which will lead to more racial, gender, and other wealth gaps. My proposed solution is for the Dep. of education to reduce the cost of tuition by linking the cost of tuition with the expected cost of the tuition, or for the Federal government to make sacrifices that will either make universities free or almost free. This will help students take out fewer loans, which then will be easier to pay off. This will aid in the early investing of other assets such as homes, cars etc.. which will then grow the economy. This will also lead to more students getting educated because they won't be so worried about the cost burden.
The idea of free tuition may seem like a distant fairytale, but there are countries including Denmark, Germany, Norway, and Finland that have free or almost-free tuition. If colleges in the U.S were to be free, that would lead to more state funding, jobs, and an increase in the morale of many students across the country (Karol). It would create a better-educated workforce and cause America's economy to grow faster. Some may say that the collective intelligence of the nation could also erode, causing America to become even more socially divided (“Should College Be Free?”). Another argument is that if more people can earn college degrees, then the value of those degrees could decrease. Regardless of the position, there are clearly pros and cons to making universities free. Similarly, a professor in the field of economics holds the same vision.
Sajay Samuel an economics and ecology professor at the Smeal College of Business at Penn State University, provides a new perspective regarding student loans. He continues to research the political implications in the world of accounting. His studies set out to find the significance of “administrative agencies and professional associations in liberal politics.”(Samuel) In the Ted talk, “How college loans exploit students for profit”, Sajay appeals to students, parents, and borrowers to view student loans as a consumer product like the economist does. In summary, Samuel suggests viewing higher education as a consumer product, especially since that is how the economy presents it. Samuel suggests there should be a linking of tuition costs to a degree's expected earnings. By doing this, students could make informed decisions about their future, restore their love of learning, and contribute to the world in a meaningful way. He states, students should know what to expect from certain degrees and the cost of a major should be less than its future salary otherwise, it would be a bad investment to attend college without profit. According to the college premium, college grads make 56% more than high school grads. But in reality, it only pays off for those that graduate from college. Because the average pay of high school grads is really low, this allows college grads to surpass them in salary. If the pay for high school grads were to be a little higher, there would be almost no benefit to going to college, for the time spent in college without pay, would equal the time worked, for a high school grad. He also makes the claim that student loan debt is profitable. For example, Sallie Mae makes a profit from tuition as well as on interest of the debt. This also explains the false advertising of some loans. He argues that there should be different prices for each major. For example, an engineering student uses more equipment and resources than a philosophy student. And even though they pay the same tuition for school, the engineer will end up earning a higher salary. If the price is made appropriate to the education received, this would help students love what they are learning and follow their passions. This plan is also strengthened through a member of Congress, who strives to see changes in the federal government.
Bernie Sanders, the junior United States Senator from Vermont since 2007, strives to promote affordable higher education for Americans. As one of his plans, he has proposed the College for All Act. This act will do quite a few things. Primarily, it uses (Robin Hood) taxes from Wall Street to provide support for programs that strive to lower student debt. The Act supports my proposal because it will reduce tuition by forcing the federal government’s assistance with these programs. He states that the program would make the federal government pay “67 percent of state college tuition with states themselves responsible for the remaining 33 percent.” This will greatly reduce the cost of tuition. He will also Reform student loans by establishing “low-interest rates on new loans and allowing existing loans to be refinanced under new rates.” The federal government will then provide more options for students to earn money by Expanding the work-study program reducing the need for loans. His final proposal is to simplify the application process for FAFSA and to make college more accessible to more Americans. This proposal carries many of the solutions that are needed more in our nation.
Higher education is heavily needed in today’s society. The push for higher education should also bring a change to the student loan debt crisis. This crisis could end the hope of a stronger, healthier, well-rounded economy that higher education is striving to provide. The economy is at risk if the student loan crisis continues to follow in the footsteps of the housing crisis. There should be a push to either make colleges and universities free, equate a degree's expected earnings to tuition prices, or for the federal government to provide easier routes for students to fund college themselves. There have been more conversations being held which is good but a sensible agreement must be met soon. Whether you are for it or against it, at the end of the day, student loans continue to allow aspiring minds to attend college. They provide opportunities that would have never previously existed. Nevertheless, this is a program that desperately needs reform before it simply melts down—like the mortgage market did not long ago. It must be more financially conscious of the students taking them, in order for the economy to benefit from it. There should be more discourse around this topic, and more efforts to help the future of this country. If student debt continues to rise to ridiculous numbers, that will neither be good for students or for the economy.