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Student Debt

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Author: Alan Greenblatt

Pub. Date: 2016

Product: CQ Researcher

DOI: https://doi.org/10.4135/cqr_ht_student_debt_2016

Topics: Consumer Credit and Debt, Business and Economics, College Financing and Funding, Education,

Cost of Education and School Funding, Undergraduate and Graduate Education, Student Movements, Social

Movements

Access Date: November 21, 2023

Publishing Company: CQ Press

City: Thousand Oaks

© 2016 CQ Press All Rights Reserved.

Abstract

Since 2004, the average debt held by graduating college students has grown at double the inflation

rate to $28,950, according to the Institute for College Access and Success. Democrats and Republi-

cans alike agree that something must be done about the student debt problem, but the two sides differ

on solutions. President Obama and many Democrats on the state and national levels propose making

community college free. Many also seek more government aid for student borrowers. But conserva-

tives warn that subsidies can backfire by driving up tuition and encouraging students to spend more

time in college than necessary. Instead, some Republicans suggest giving student borrowers more

flexibility to refinance their loans and thus find better deals.

Current Situation

Sen. Bernie Sanders of Vermont attends a news conference in Washington, D.C., in May

2015 on a bill to eliminate tuition at public colleges and expand work-study programs. (Get-

ty Images/CQ Roll Call/Tom Williams)

Student debt has become a trillion-dollar problem in the United States — $1.2 trillion, in fact, according to the

federal Consumer Financial Protection Bureau. 1

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The problem is so extensive, a number of studies have found, that many college graduates delay buying

homes or cars or even hold off marrying and starting families because of the post-college financial burden

they carry. 2 In one 2015 survey, for instance, more than half the young adults put off buying a car or taking

on a mortgage because of student debt. 3

Not all agree the problem is dire. A recent survey of 3,000 young adults by independent market research firm

Ipsos Public Affairs for Navient Corp., a major private student lending company, said graduates with high lev-

els of debt are still reaching their major life milestones, although students who dropped out without completing

degrees are struggling. 4

Nevertheless, the debt levels are sufficiently high that many policymakers are exploring ways to help students

pay off the loans they already have or helping them avoid debt in the first place by making higher education

more affordable.

“I’m a lawyer and my wife’s a doctor,” says Shap Smith, the Democratic speaker of the Vermont House. “We

have been saving for college since our kids were 3 months old, and we can’t make it, so how can others who

are less fortunate?”

Free Community College

In his 2015 State of the Union address, President Obama proposed making community college tuition free

for all students by building a national program modeled after one called the Tennessee Promise, which offers

free tuition to state residents who maintain at least a 2.0 grade point average in college. Obama’s idea has

gone nowhere in Congress, with Republicans objecting to the estimated price tag of $60 billion over 10 years.

5

But Obama has not given up. On April 25, Vice President Joseph Biden announced that the Department of

Labor will award $100 million in grants for education and training programs at community colleges, includ-

ing for free-tuition programs. The money will be used to support plans developed by regional consortiums

of employers, workforce development boards and community colleges themselves. 6 The hope is that such

programs will not only expand access to college for students but also help prepare them to work in specific

industries near their schools.

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Students at Hunter College, part of the City University of New York, protest ballooning debt

in November 2015. (Getty Images/Anadolu Agency/Cem Ozdel)

Annual tuition and fees at community colleges generally are much cheaper than in-state tuition and fees at

four-year public schools — $3,435 at the former versus $9,410 at the latter. 7 Only about 17 percent of stu-

dents at public two-year colleges take out federal student loans, compared with 48 percent of those at four-

year public colleges. 8 But the rate of default among community college students is growing, with students

who borrow the least defaulting the most — often because they fail to take steps to restructure their debt, such

as rescheduling their payments. According to a study released last fall by the Brookings Institution, a Wash-

ington think tank, 38 percent of two-year college students who began repaying loans in 2009 had defaulted

within five years, compared with 10 percent among students who attended selective four-year colleges. 9

Since Obama made his proposal, free-tuition programs have passed in Oregon and Minnesota as well as in

some two dozen localities. 10 These differ in terms of their scope and funding mechanisms, but all share the

goal of offering students at least two years of college instruction tuition-free.

“In Oregon, there are thousands of idle youth between the ages of 16 and 24 who have no education and no

job,” says Democratic state Sen. Mark Hass, who sponsored his state’s free community college plan. It was

created last year and will underwrite 12,000 students this fall. “In effect, we’re now saying public education is

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K-14,” Hass says.

Free community college not only helps students financially but also ensures more of them are trained to meet

the labor needs of local employers, says Kentucky state Rep. Tommy Thompson, a Democrat. “When you

talk to many, many managers at manufacturing facilities in Kentucky, they universally speak of the shortage

of skilled workers,” he says.

Thompson co-sponsored a free community college plan that was included in the state budget. But Republican

Gov. Matt Bevin vetoed some of the funding for the proposal, delaying its start until the 2017-18 school year.

He said implementing the program properly would require more time. 11

Campaign Issue

Student debt and college affordability have emerged as top campaign issues, at least on the Democratic side.

“It’s a topic you almost can’t ignore,” says John Zurick, executive vice president of American Student Assis-

tance, a Massachusetts-based nonprofit that provides advice to student borrowers. “It’s not something that’s

happened in previous presidential campaigns, at least not nearly to the degree we’re hearing about it now.”

Sen. Bernie Sanders of Vermont, who attracted a strong following among young voters in his bid for the De-

mocratic presidential nomination, has advocated providing four years of free higher education at public insti-

tutions to all who enroll. The federal government would pay two-thirds of the cost and states the other third.

Sanders has noted that countries such as Germany offer free higher education and that public colleges such

as the University of California used to offer free tuition.

Sanders also has said he wants to lower interest rates on student loans and refinance current student debt,

financing all these plans with $75 billion-a-year in new taxes on “Wall Street speculators.” 12 His proposal

has drawn criticism for being expensive, for relying on extra spending from states that have historically under-

funded higher education and for offering subsidies to wealthy students who could otherwise pay for college

on their own.

Former Secretary of State Hillary Clinton, the presumptive Democratic presidential nominee, favors free com-

munity college, offering a plan that mirrors the Obama administration proposal. She said she also wants to

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lower interest rates for student borrowers and require students who receive aid to work about 10 hours per

week. 13 She would fund her $350 billion plan by cutting income tax deductions for top earners.

Clinton has called Sanders’ plan unworkable because it relies on billions of dollars from states — most of

which have cut aid to higher education in recent years. Clinton also said that not everyone needs or deserves

a free ride at a four-year school. “I am not in favor of making college free for Donald Trump’s kids,” she said

last October. 14

Trump, the billionaire developer and presumptive GOP nominee, said it is unfortunate that students are

“swimming” in debt. He was critical of the idea that the federal government, which underwrites most student

loans, should make a profit off such transactions. “That’s probably one of the only things the government

shouldn’t make money off,” he said last summer. “I think it’s terrible that one of the only profit centers we have

is student loans.” 15

Trump promised recently on the campaign trail that his administration would help alleviate student debt, but

he has not outlined a plan.

In general, Republicans want market-based solutions to the debt program, not increased government subsi-

dies. Two Republican senators, Kelly Ayotte of New Hampshire and Shelley Moore Capito of West Virginia,

introduced legislation last fall that would allow student borrowers to refinance their loans in the private lending

market. They argued this would allow borrowers more flexibility and the chance to shop for lower interest

rates, but opponents of the approach called it a giveaway to lenders. 16

Sen. Marco Rubio of Florida, who sought the GOP presidential nomination this year, favors income-share

agreements, which allow individuals or companies to finance higher education for students in exchange for a

percentage of their income for a set period after graduation. 17

The Obama administration has been promoting income-based repayment plans. Once in the workforce, bor-

rowers can negotiate a monthly payment based on the level of their incomes. According to the Government

Accountability Office, 51 percent of student loan borrowers are eligible for such plans, but only 15 percent are

enrolled. 18

In February, Fidelity Investments, a mutual fund and financial services company, began offering to pay up to

$2,000 per year toward each of its employee’s student loans. Thousands of Fidelity workers quickly signed

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up. 19 While the idea is getting more attention, only 3 percent of employers currently offer such a benefit. 20

State Action

States historically have been much bigger funders of higher education than the federal government, but that

no longer is the case. 21 Pell Grants — awards to college students that do not have to be repaid — and other

federal programs have grown by nearly a third over the past decade, while state spending on higher educa-

tion has shrunk 37 percent. 22

Nearly all states cut back on higher education spending during the rough budget years following the recession

of 2007-09. Some are still struggling with inadequate funding. In April, after years of budget cutting, Illinois

passed a $600 million stopgap spending bill for higher education that will keep the state’s public universities

open through the summer. 23 Last year, Wisconsin cut its support for higher education by $250 million. 24

The result of state cuts is higher tuition. (Public universities, of course, remain much cheaper than private

institutions that now charge upwards of $60,000 per year in tuition, fees and room and board.) While many

Republican lawmakers are advancing their own plans on student debt, some argue that because students will

reap the benefits of higher education, they should pay the cost. These conservatives say government-funded

loans and other subsidies help drive up tuition. 25 Because students are able to borrow more money, this line

of thinking goes, colleges raise the cost of tuition.

Indiana and Nebraska are experimenting with greater cost transparency. Starting in 2012, Indiana University

began sending letters to students estimating their total debt and future monthly payments. Undergraduate

borrowing has since dropped by 18 percent. 26 Heartened by the results, Indiana passed a law last year re-

quiring all colleges that accept state aid to send such letters. Nebraska passed a similar law this year.

Too many students are spending more time in college than they need, says Robin Vos, the GOP speaker of

the Wisconsin Assembly. Many jobs require some education beyond high school, but that might be a year

or two of technical training, not a four-year baccalaureate degree. “In our state, two out of three high school

students go on to four-year colleges,” Vos says. “How many jobs require those degrees? One out of three.

Literally 50 percent of the people are taking on debt for a degree they don’t need to get for the job.”

For-profit colleges have also come under scrutiny because of their role in the tripling of student debt in the

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past decade. Thousands of student borrowers who want their loans forgiven allege that a number of for-profit

colleges used illegal tactics to recruit them, offering false information about the earnings of their graduates.

More than a dozen state attorneys general have begun investigations into for-profit colleges and their accred-

iting agency, the Accrediting Council for Independent Colleges and Schools. 27 The Department of Education

has agreed to cancel nearly $28 million in debt rung up by 1,300 students at Corinthian Colleges, a for-profit

chain that declared bankruptcy last year. 28

Former students at Trump University, meanwhile, have filed two separate lawsuits alleging that a real estate

seminar program they enrolled in was a sham. The suits argue the program fraudulently advertised that

Trump personally chose instructors and that students would learn the “secrets” of how the real estate mogul

became so rich. Trump has denied all the charges and is aggressively fighting both suits. 29

With student debt rising, the number of borrowers at least 90 days behind in their loan payments has roughly

doubled since 2009. 30

In most instances, former students are responsible for repaying their loans. Federal bankruptcy law requires

borrowers to pay back student loans unless doing so would create an “undue hardship.” In January, the

Supreme Court refused to hear a debt-relief case brought by Mark Tetzlaff, a 57-year-old who owes more

than $260,000 in loans after attending business school and law school. 31

Some student advocates are pushing for wealthier universities to devote more of their endowments to student

aid. 32 U.S. Rep. Tom Reed, R-N.Y., has proposed that colleges with endowments of more than $1 billion

devote 25 percent of the income from those funds to tuition assistance, or lose their tax-free status. 33 That

idea has yet to gain traction in Congress.

Facing a budget deficit, Connecticut legislators this year considered taxing investment profits of university en-

dowments worth more than $10 billion, which would have applied only to Yale University. Florida GOP Gov.

Rick Scott responded with the suggestion that Yale relocate to Florida. “We would welcome a world-renowned

university like Yale to our state, and I can commit that we will not raise taxes on their endowment,” Scott said.

34

Yale said it had no interest in moving and the state Legislature soon dropped the idea of taxing its endowment.

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Footnotes

1. “Student Loan Servicing,” Consumer Financial Protection Bureau, September 2015, http://tinyurl.com/

zp9yg9f.

2. See, for example, Jenai Engelhard Humphreys, “What can’t grads afford because of student loans? Kids,

for one,” The Boston Globe, May 22, 2015, http://tinyurl.com/zpqoyt2.

3. “Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans,” American Student As-

sistance, December 2015, http://tinyurl.com/hpr9nvp.

4. “Money Under 35,” Navient, http://tinyurl.com/gmhff2c.

5. Michael Collins, “Obama’s tuition-free community college plan stalled in Congress,” The Commercial Ap-

peal, Oct. 4, 2015, http://tinyurl.com/znare4t.

6. Alfred Lubrano, “In Phila., Biden touts tuition-free community college,” The Philadelphia Inquirer, April 27,

2016, http://tinyurl.com/hshygxe.

7. “Average Published Undergraduate Charges by Sector, 2015-16,” Trends in Higher Education, 2016,

http://tinyurl.com/hcdhmmu.

8. Colleen Campbell and Nicholas Hillman, “A Closer Look at the Trillion: Borrowing, Repayment, and

Default at Iowa’s Community Colleges,” Association of Community College Trustees, September 2015,

http://tinyurl.com/j8yolfb.

9. Adam Looney and Constantine Yannelis, “A crisis in student loans? How changes in the characteristics of

borrowers and in the institutions they attended contributed to rising loan defaults,” Brookings Papers on Eco-

nomic Activity, Sept. 10, 2015, http://tinyurl.com/pe7xpjb.

10. Alan Greenblatt, “Free Community College Gets Financial Aid From White House,” Governing, April 25,

2016, http://tinyurl.com/gwrvrox.

11. Tom Loftus, “Bevin delays free community college plan,” Courier-Journal, April 28, 2016, http://tinyurl.com/

jme2ty6.

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12. “It’s Time to Make College Tuition Free and Debt Free,” Sanders campaign website, http://tinyurl.com/

qezcz3u.

13. Alana Wise and Luciana Lopez, “Sanders and Clinton battle for youth vote with college plans,” Reuters,

Jan. 26, 2016, http://tinyurl.com/zekfh8y.

14. Nick Gass, “Clinton knocks Sanders’ college plan: Trump’s kids shouldn’t get free ride,” Politico, Oct. 5,

2015, http://tinyurl.com/pghxf6q.

15. Kevin Cirilli, “Trump: Why is federal government making money on student loans?” The Hill, July 23, 2015,

http://tinyurl.com/pzmjaw3.

16. Kevin James and Andrew Kelly, “Swing and a Miss on Student Loan Reform,” U.S. News & World Report,

Oct. 27, 2015, http://tinyurl.com/ju622hn.

17. Paula Dwyer, “Rubio’s College-Cost Plan Deserves a Chance,” Bloomberg View, Dec. 2, 2015,

http://tinyurl.com/gp6a9mb.

18. “Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment

and Forgiveness Options,” Government Accountability Office, August 2015, http://tinyurl.com/gsjr39n.

19. Deirdre Fernandes, “Thousands of Fidelity workers get help paying off student loans,” The Boston Globe,

March 15, 2016, http://tinyurl.com/hjpbqqy.

20. Kathy Gurchiek, “Few Employers Offer Student Loan Repayment,” Society for Human Resource Manage-

ment, March 18, 2016, http://tinyurl.com/jjjj9go.

21. “Federal and State Funding of Higher Education: A Changing Landscape,” Pew Charitable Trusts, June

2015, http://tinyurl.com/jp3nwnw.

22. Ingrid Schroeder, “Footing the bill for higher education,” The Hill, April 5, 2016, http://tinyurl.com/zzpoeag.

23. Monique Garcia and Celeste Bott, “State lawmakers approve funding to keep universities afloat through

summer,” Chicago Tribune, April 22, 2016, http://tinyurl.com/zo9br4x.

24. Rebecca Schuman, “The End of Research in Wisconsin,” Slate, March 21, 2016, http://tinyurl.com/h8zhm-

bg.

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25. Adam Tyner, “When College Is a Waste of Time and Money,” Real Clear Education, April 27, 2016,

http://tinyurl.com/ju9ccgr.

26. Sophie Quinton, “What Happens When You Warn Students About Their Loan Debt?” Stateline, May 19,

2016, http://tinyurl.com/zpomhh8.

27. Annie Waldman, “Attorneys General Come Down on Accreditor of For-profit Colleges,” ProPublica, April

11, 2016, http://tinyurl.com/z9zuakk.

28. Josh Mitchell, “Thousands Apply to U.S. to Forgive Their Student Loans, Saying Schools Defrauded

Them,” The Wall Street Journal, Jan. 20, 2016, http://tinyurl.com/jqbplxf.

29. Josh Gerstein and Maggie Severns, “Trump fights racketeering claim in Trump University suit,” Politico,

June 18, 2016, http://tinyurl.com/j57ptc2.

30. Josh Mitchell, “Should Anyone Be Eligible for Student Loans?” The Wall Street Journal, Dec. 6, 2015,

http://tinyurl.com/jfjroe7.

31. Brent Kendall and Josh Mitchell, “Supreme Court Denies Appeal on Student-Loan Erasure,” The Wall

Street Journal, Jan. 11, 2016, http://tinyurl.com/hsnsade.

32. “Yard Sale,” The Economist, March 26, 2016, http://tinyurl.com/j93guyv.

33. Janet Lorin, “Richest U.S. Schools Could Lose Tax Status in Endowment Proposal,” Bloomberg, Jan. 8,

2016, http://tinyurl.com/gm2mjz2.

34. Gray Rohrer, “Gov. Scott to Yale: Move to Florida,” Orlando Sentinel, March 29, 2016, http://tinyurl.com/

hmrhtb2.

About the Author

Alan Greenblatt is a freelance writer in St. Louis.

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Chronology

2016

January

Supreme Court refuses to hear a case seeking to make it easier to erase student loans

in bankruptcy.

March

College Savings Plan Network — the network of state administered plans — releases

a report stating that tax deferred 529 college savings plans had a record $253 billion in

assets in 2015.

April

Connecticut Legislature kills a proposal to tax profits earned by Yale University’s en-

dowment.… More than a dozen state attorneys general ask the U.S. Department of Ed-

ucation to revoke recognition of the Accrediting Council for Independent Colleges and

Schools, which oversees for-profit colleges.… Vice President Joseph Biden announces

that the Obama administration will devote $100 million to community colleges, including

grants for free tuition programs.… Republican Illinois Gov. Bruce Rauner signs a $600

million plan that will keep public colleges and universities open through the summer.…

Kentucky GOP Gov. Matt Bevin vetoes $9.4 million in funding for a free community col-

lege program, delaying its start until the 2017-18 academic year.

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https://doi.org/10.4135/cqr_ht_student_debt_2016

June

Donald Trump continues to fight two lawsuits over his defunct Trump University real es-

tate seminars; the students accuse Trump of fraud, which he denies.

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