The outstanding student loan debt in the United States is 1.78 trillion dollars. For reference, the GDPs of developed countries like South Korea, Australia, and oil-rich Saudi Arabia are less than $1.7T respectively. The explosion in tuition costs and associated debt accumulation is undeniably a looming economic crisis. It’s a crisis that requires a basket of policy solutions to transform higher education from the bottom up – including, yes, cancellation of some federal student loans. But while the fight to cancel student loan debt continues, we think it would be especially worthwhile to explore some data and highlight potential solutions for this debt burden.

📈 How We Got Here

Tuition cost and fee inflation have outpaced CPI Inflation 4-to-1 over the last 40 years:

Animated versions of these charts on Threads (or Twitter): @theArmanMadani

The resulting $1.78T of debt includes $1.65T that is federally owned (93%). 45M Americans have federal student loan debt. Roughly half of all the debt belongs to individuals with graduate degrees while the other half belongs to individuals with undergraduate degrees; though it’s worth noting that there are fewer graduate students overall so the debt held per student is higher for graduates:

Animated versions of these charts on Threads (or Twitter): @theArmanMadani

Student enrollment in higher ed institutions has risen consistently since 2000. With higher demand for college degrees – including out-of-state demand for state universities – tuition has risen precipitously. Rising enrollment is also associated with a changing US labor profile; for example, manufacturing jobs were eclipsed by “business and professional services” jobs as well as healthcare, education, and retail jobs. One troubling manifestation of the demand for higher degrees can be seen during the 2008-09 Recession as newly unemployed individuals scrambled for retraining. From 2008 through 2009, enrollment in private for-profit colleges rose disproportionately compared to private non-profit and public colleges. Private for-profit colleges have extraordinarily high rates of default, near 16% of borrowers default within 3 years.

During this period of heightened demand, a more obvious inflationary effect took place: state funds were cut for public colleges on a per-student basis in the run-up and fallout of the Recession.

💸 What Now

[WARNING: I include my opinion in this section, I look forward to a lively discussion in the comment section]

There are short and long-term solutions needed to address the debt problem.

Short-term, students need recourse. Defaulting on loans creates a cascade of consequences that necessarily harm borrowers earning potential for years (e.g. colleges can withholding proof of attendance, decline in credit score, wage garnishments, etc.) There are loans that are highly likely to default regardless after the COVID moratorium on payments ends. These loans should be forgiven/cancelled. The fallout of default en masse – especially amongst low and middle-income degree holders – would present a much greater cost to the economy than the cost of cancellation. Additionally, controlling what information can be reported to credit bureaus (like medical debt) and regulating what information colleges can withhold would also reduce negative income effects caused by default (e.g. a private for-profit institution cannot withhold proof of attendance in the event of default).

Long-term, controlling the underlying cost of higher ed itself is an imperative. Federal support for and expansion of programs like The California Promise – which provides free tuition for California residents who attend CA community colleges – would eliminate the burden for some new graduates. Apportioning more existing or raising new tax revenue to invest in underfunded private colleges (e.g. HBCUs) and public colleges can reduce tuition costs by supplanting/exceeding the aforementioned state funding cuts as well.

This is a complex issue which requires comprehensive policy solutions. But one of the reasons student debt has received the attention it has is because of the opportunity it presents. An opportunity to extend a stimulus to low/middle income earners in the short-term and transform the higher education system in the long-term.


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