Nardi 1

Elizabeth Nardi
Professor Chase Pielak
GEN 499: Apocalypse
24 November 2015
Problem Solution Paper: Student Loan Debt
Pursuing higher education is becoming more of a requisite in peoples future and
businesses are expecting potential employees to have degrees. As a degree becomes more of a
requirement, students are having a hard time keeping up with the financial costs of obtaining it.
The reason is because colleges are increasing tuition costs on top of room and board each year.
Students are finding themselves stuck between the decision of going to college and being in debt
or starting a job but never fulfilling the degree requirements to have the stereotypical successful
career path. The benefit relative to cost has become slim in the fact that students are not seeing
the benefits of college as in the past, which when compared to the financial burden is not worth
the outcomes of obtaining a degree. Student loans are one of the biggest financial burdens and
major problems in America today. The student loan debt on average keeps increasing and
thousands of students graduate each year with significant loan amounts, which is affecting more
than just the student. Student loans have been increasing over the years which have been
affecting the economy as students are not equipped to earn enough money to pay back the loans,
hold off on major purchases that can improve their way of life, and have a low return on
investment for the student in the working world.
The average college student is between the ages of 18 to 25 years old which has been
studied through youth development and is explained as a transition period between adolescence
and adulthood. College students are not only transitioning through this stage in life, but they are

Nardi 2
struggling to transition between financial dependency and being financially independent. The
barrowing behaviors of these young adults, in many different demographics, are playing a huge
role in the large amount of debt that young adults incur. Unfortunately, in addition to student
loans, undergraduates are carrying a record high credit card balance with an average balance of
$3,173, which is ultimately adding to the spiral effect of financial difficulties these young adults
are facing (Kim and Jinhee 55). Young adults signing these loan agreements and trying to fill out
FASA forms may not fully understand the financial decisions that will eventually affect their
futures. Recent findings suggest that the transitioning adults are more likely to demonstrate risktaking behaviors and engage in poor financial decision making, which can be seen in the results
of not only student debt loans, but also credit card debt (Kim and Jinhee 55). These major
characteristics of young adults add not only to their own debt, but ultimately have a stronger
effect on the economy and social milestones.
Student debt is a growing problem that unless you or a close relative has, it can be hard to
see the problem at hand. Unfortunately, this may not be the case for very long. Student loan debt
has been on the rise and has been crippling to students and their families. Not only are these
numbers affecting the graduates, but their families that are helping them. A survey found that, of
the 15 percent of individuals who currently owe money on loans for their own education, 6
percent of that group also owes money for a spouses education; and another six percent hold a
debt acquired for a child or grandchild" (ACA International). This is overall changing the core
financial decisions for students who are holding debt loads and with the absences of these social
milestones, such as buying a house. It is overall affecting the longstanding social and economic
trends. In 2011, the average loan balance of 25 year olds with student debt was $29,000. This is a
normal age where a graduate would have obtained their degree within the past two years and

Nardi 3
would have started searching for a career if they had not already found one. This number is a
concern because with college graduates on average graduating at the age of 22, their loans are
already starting to gain interest and they should have at least found a part time job to start paying
something back on that debt. There are many different circumstances, but regardless the average
debt is higher than ever and has actually increased 91 percent since 2003. Not only does the
average student have $29,000 in debt, a study showed that 10 percent of students actually
graduate with over $40,000 in debt and the top 1 percent graduate with $100,000 in debt. It is
easy to see with these staggering numbers why this debt load has had a huge effect on the 40
million barrowers and the economy with more than $1.2 trillion in outstanding student loan debt
(ProCon Nonprofit).
According to the Census Bureau, Americans under the age of 25 have plummeted in the
homeownership market. In 2005, 43.3 percent of these Americans owned a home, but this key
marker of adulthood and maturity has dropped even further to 34.6 percent in 2015. This 7.7
percent decrease has been linked to the downturn in the economy and the changing social aspect
of society. Not only have graduates with debt put off homeownership, they have started to put off
starting a family. Birth rates are at a record low and they have been declining since 2008
according to the Center for Disease Control. The median age of a mother, for a first child has
increased to about 26 years of age, but the overall birth rate among women between the ages of
20 to 29 had dropped immensely (Holland). The birth rate and homeownership rates have
dropped due to the increased amount of debt within this age group. Graduates are finding it
harder to reach these social milestones with the debt burden they hold. Transitioning to
adulthood can be considered as finishing school, moving out, financial independence, marriage
and starting a family. In 1960, by the age of 30, 77 percent of women and 65 percent of men had

Nardi 4
completed these social milestones. Now, less than 50 percent of women and 30 percent of men
have passed this transition. There are new trends that are emerging within this age group that are
concerning to economists and the future due to the debt load. A study done in 2013 showed that,
these recent graduates are delaying retirement savings by 41 percent , car purchases by 40
percent, home purchases by 29 percent and marriage by 15 percent (ProCon Nonprofit). The
scariest part about these new trends is that this money cycle that has been circulating in the
economy for years is now being disrupted and is going to cause a major financial crisis if
something is not done quickly.
These high levels of debt are suppressing consumption for these barrowers since it is
being found that within this age group a substantial amount of their income is being used to pay
off their loans. According to the US Congress Joint Economic Committee, approximately 60
percent of 2011 college graduates have student loan debt balances equal to 60 percent of their
annual income (ProCon Nonprofit). Student debt is not dischargeable, and there are penalties
that also affect these graduates if they default or do not pay on their loans such as garnishing of
wages and interception of tax refunds. As a result, it can lead to reduced consumer spending and
even less access to credit for major purchases (Ivanchev 2). Sallie Mae, the largest and most
dominant student loan company, released that their record profits in 2003 were due to penalties
and fees on defaulted loans. Between 2000 and 2005 this fee income alone raised 228 percent
from $280 million to $920 million in just five short years. They alone have had an average
annual rise of 160 percent due to two causes being inversely related: the cost of tuition becoming
higher and the barrowers abilities to pay back their loan (Collinge, 2009). This endless cycle of
debt is inhibiting consumerism and the economy by affecting a significant part of the population
and controlling the change in social trends.

Nardi 5
The burden of the price of college is evident, but there are obvious reasons why so many
apply and enroll each year. The cost benefit analysis of college and the return on investment of
this decision are greater than the alternatives. In 2012 an economic analysis concluded that the
cost of college is growing, but the benefits of collegeand, by extension, the cost of not going to
collegeare growing even faster (Holland). Comparing the difference between a bachelors
degree and a high school diploma with all other variables constant, regardless of the major, has
been found that the return on investment remains higher for a bachelors degree.
The opportunity costs associated with a bachelors degree are offsetting the rising tuition
to cause this the economic return to continue to be consistently higher than not obtaining a
degree. In the last decade alone a degree is earning a return of about 15 percent. To compare
these two different scenarios, the economic benefit can be looked at as the amount of extra wages
a person will gain with in a life time if they graduate college. The wage differential can provide a
guide in a numerical form to why a college degree is so crucial. By simply looking at the average
wages of both a college graduates and a high school graduates over an average life time of wages
to the age of 65, which is the average age of retirement, a bachelors degree is substantially
higher in reward than a diploma. Looking at data over the past four decades, a bachelors degree
earns about 56 percent more than a diploma, and even an associates degree earns 21 percent
more than a diploma. In dollars, when compared to the averages wages of a typical worker over a
lifetime, a bachelors degree will earn on average $1 million more than a typical worker with a
diploma and even with an associate degree, on average, will earn $352,000 more than a diploma
(Able and Deitz 4). Not only is it a decision that affects your future financially in earnings and
socially due to the debt burden to obtain a degree, but a labor analytics firm did a study in 2014
and found that 42 percent of management job holders had bachelor's degrees, but 68 percent of

Nardi 6
job postings required them (Holland). Therefore not only are students stuck between the
decision to go to college they are trapped in societys rules and requirements of a successful
future without having the power to change it.
In order to find a solution to this problem, the first consideration is who should uphold
the financial burden: the student, the government, or the university. From there a solution can be
analyzed and proposed. Looking at options and opinions of current leaders, it is obvious that they
see the problem but a perfect solution has not been presented or acted upon. It is a well-known
fact that nothing is truly free, someone always needs to take on the payment, and college is no
different. By considering what has already been done through the government, such as Barak
Obamas proposals in recent years and even Bernie Sanders starting to give his opinions for the
upcoming election, a few different solutions can be proposed to lessen the debt burden. These
include: informing students on the financial cost of college other than the ticket price and
possibly give loan forgiveness options. Although we should not create risk profiles for students
and limit the opportunity to go to college, a solution that could be considered is a time period in
which loans could be discharged in certain situations. With these two ideas, student loan debt
could be reduced on the students end in order to bring down the negative effects that are
happening to the economy and the social aspects of an adults life.
The first thing that needs to be analyzed is what party should the financial burden fall on.
At this point in time it is on the student and possibly their family in most situations. It is obvious
to understand how it affects the student and it has been explained previously, but parent
involvement is one of the parties that can be looked at. Since parents are on the same end as the
student, they are able to contribute to the end of student debt. Since it is not possible for every
parent of a college student to financially help support them, we can group the parents of the

Nardi 7
students that can assist into the same category. For the parents that can financially help their
children there are many different things they are able to apply for such as signing up for parent
scholarships and government aid. Parents can start to save money over time before their children
attend college. Also the parents are able to put the student on their deductibles while they are in
college, so get money back or save money on taxes to help support their child. The most
important factor that parents and students care about is obtaining a degree which is compared to
as buying an intellectual home for you or your child (Davis, 2015). Not only is this compared
to buying a house, at times the loan crisis is compared to the subprime mortgage crisis. The
difference and possibly the reason why the loan crisis may surpass the mortgage crisis as being
even more detrimental is because a house is a tangible item that can be used immediately and
can also be sold again. On the other hand, an education is intangible which is causing the cost of
it to be nontransferable in the future (Razaki and Koprowski 97). So, the importance of
education, and for this instance a college education, is something that no matter the price a
person needs to get for their future. Unfortunately, as the statistics have shown this price has
increased drastically which is impairing the students who have been the main party picking up
this burden.
If the student is not taking on the financial burden fully, then there are two other parties
that could be a part of upholding this debt: the government and the school. This is a possible
solution to bridge the gap of financial debt between the government, the school, and the student.
Bernie Sanders, a presidential candidate, has a view that many people are getting on board with.
He stated in his speech to the Democratic National Committee that
We need a movement that says in a highly competitive global economy, that all of our
people who have the ability, the qualifications and the desire, will be able to get a college

Nardi 8
education regardless of the income of their families because we will make public colleges
and universities tuition freeand were going to pay for it though a tax on Wall Street
Speculation (Sanders).
Bernie Sanders view that school should be free sounds fantastic to many people, especially the
ones holding the debt, but free is never really free. There is always someone who needs to pay
for the services at hand, but distribution of this type of debt is possible it just has never been
implemented. One way that this distribution could start to be an actual solution is through
government aid in price ceilings or controls on tuition. The government has a huge role in
creating price controls over many products and services in the United States if they are beginning
to hurt the economy and other factors. As seen previously, this problem is already doing that,
therefore the government could step in and create a price ceiling for college tuition in order to
help the students financial burden. A price ceiling is when the government puts a limit for how
high the price is allowed to be. For tuition costs, this would benefit the students greatly because
it would ultimately stop the drastic increases per year for colleges around the country. The price
ceiling, by definition, will be set below the natural market equilibrium, which would ultimately
create a shortage. For colleges this means that they would have to be more selective in the
process of accepting students because there would be a shortage of supply of school funds due to
this tuition lost on their end (Kamenetz). This would help spread the financial burden between
the three parties.
At this point in time, the institutions are in a win-win situation because they are able to
increase tuition and students and the government are the ones taking the fall for the loans.
Increased student barrowing has enabled colleges and universities to raise their tuition and fees
by unprecedented percentages and amounts (Razaki and Koprowski 99). The federal

Nardi 9
government is making it a social goal to have higher education available to all but they are
unable to ensure the future earnings for the students taking out the loans. The colleges are trying
to meet enrollment and registration targets, which gives them more funds for their financial and
academic goals. They are encouraging students to borrow for the best interest of the institution
regardless of students ability to pay back the loans. Even student aid offices have stated that
their small staffs are not capable of keeping thousands of students up to date regarding their
student aid students and their families are responsible for monitoring this debt progression
(Razaki and Koprowski 98). All of the responsibility for the loans is being defaulted to the
students and parents even if they do not fully understand the conditions that they are agreeing to.
The government has five major types of government loans, Stafford subsidized and
unsubsidized, PLUS loans, consolidated loans and Perkins loans. These loans are based on
supporting student by making policies geared towards repayment plans and loan cancelation
policies. These are polices that are already in place to help the student along with a no
prepayment penalty like private loans. They also generally have lower interest rates have flexible
repayment terms. Another safe guard that the government has proposed recently would help
spread the burden to the taxpayers by allowing the students to write off unpaid loans after as little
as ten years under certain conditions. This would be a major step in the right direction of helping
the student and their debt load (Razaki and Koprowski 100). For example one of the conditions
could be not missing a payment within the ten years to show that you are responsible for your
education and payment but should be rewarded to pass off the rest of the debt. This is one
solution that would be beneficial to society and the student because the student would get loan
forgiveness and they would be able to spend their money elsewhere in the economy. If this loan
forgiveness is not implemented to everyone, the struggle of loan debt will continue because a

Nardi 10
student loan is one of the only loans that cannot be discharged by bankruptcy. Bankruptcy is used
by barrowers in extreme circumstances, but student loans will never dissipate if a student
declares bankruptcy.
Looking into solutions that have been proposed compared to the ones that have been
implemented, there is a huge issue because many have been left to sit on the side while colleges
and lenders continue to make money. In recent years during the Obama administration alone,
President Obama first reduced the cap of monthly federal student loan repayment amounts from
15 percent down to 10 percent of discretionary income of graduates (Razaki and Koprowski
96). This income based repayment program enabled students to make realistic payments that
were reasonable so they were able to still have funds for other purchases or savings. He also
implemented the Health Care and Education Reconciliation Act which removed the rick of
defaulting on student barrowers from private lenders which they thrived on for massive profits.
He also implemented Loan Forgiveness Program for qualified borrowers who worked in fulltime public service positions so they would also have less debt in they stayed in that position.
This is also where the full ten year loan forgiveness was proposed for everyone who qualified but
only the public service positions and government positions were able to be implemented at this
point. Also Barak Obama proposed having the government cover the average cost of community
college for students who maintain certain criteria such as a specific grade point average. This
could also ease the burden of debt. Students would then be responsible for any education beyond
community college, but it would give them a base to start at. Unfortunately, this proposal has not
been implemented yet, so even community college education is creating debt for students
(Holland). This would give everyone the opportunity to continue their education after high
school such as Bernie Sanders proposal, but not as drastic or costly to the government. The fact

Nardi 11
that some of these proposals have not been implemented or approved yet is shocking considering
in 2012 alone, out of the 37 million barrowers, 14 percent or 5.4 million barrowers were at least
one payment past due because they are struggling to repay their debt (Razaki and Koprowski 95).
The last solution that could be proposed is to have schools post their return on investment
averages for the entire school and possibly per degree program. This would allow students to
know what they are getting into upon graduating and whether or not this investment is right for
them. By using data from Payscale, Forbes is able to create the top 25 best schools or return on
investment and also the top majors. If Forbes is able to get this data, the colleges themselves
should be able to supply the data to students as well. This should be a mandated number for
colleges across the country. It would help students understand their return on investment from
these colleges compared to the upfront cost associated with their school and their degree
(Adams).
With all of the distribution of who should pay the cost of college, there is one idea for a
solution that should never be implemented. It is distribution based on risk profiles. This is looked
at when getting other loans for big ticket items like cars, houses and other loans. It looks at the
risk of the person based on their credit and ability to pay back the loan (Yi). For education this
should not be implemented because as a student, one has not been able to prove any sort of
financial credit to institutions and may not even have a job at that point in their life, so there is no
credible way to judge their future financial decisions. An institution would have to turn many
potential students away and they would never have a chance at a college education because the
loan process would decide for them, rather than their inelegance. The only way these profiles of
students could possibly be used in a good way is for income related profiles, which is already a
way that helps students pay back their loans or even get them discharged over a certain period of

Nardi 12
time. The profile could help prove that they need help on repaying their loans due to their income
or other circumstances.
If the cost is evenly split in fifty years between the government, the schools, and the
students then the student loan crisis can be avoided. Over the next few years the government
should implement the distribution between the schools, the students, and themselves. They
should create price ceilings in order to create a maximum price for tuition. They need to
implement loan forgiveness for everyone who is qualified not just public service or government
jobs. They could possibly start free community college tuition in order to reduce the full cost of
tuition for continuing education. Lastly, they should create a policy that requires college
institutions to report their return on investment rates in order to allow students to make educated
decisions. The government should also keep in place the federal loans and their policies such as
keeping a low interest rate on loans that starts after a student graduates or discontinues school as
well as flexible payback options, and income related payment amounts. By following the
solution steps that were proposed this crisis can start to be fixed and hopefully resolved within an
appropriate amount of time before it becomes the next financial crisis in America.

Works Cited

Nardi 13
Able, Jaison R. and Richard Deitz. "Do the Benifits of College Still Outweigh the Cost?"
Federal Reserve Bank of New York Current Issues in Economics and Finace 20.3 (2014).
<http://www.newyorkfed.org/research/current_issues/ci20-3.pdf>.
ACA International. "The Impact of Student Loan Debt on the Economy and Borrowers." ACA
International (2015). <http://www.acainternational.org/news-the-impact-of-student-loandebt-on-the-economy-and-borrowers-36064.aspx>.
Adams, Susan. "25 Colleges With the Best Return on Investment." Forbes (2013).
<http://www.forbes.com/sites/susanadams/2013/05/20/25-colleges-with-the-best-returnon-investment/>.
Collinge, Alan. The Student Loan Scam. [Electronic Resource]: The Most Oppressive Debt in
U.S. History, And How We Can Fight Back: Boston: Beacon Press, 2009. Ashford
University Library Ebook Collection. Web. 20 Sept. 2015.
Davis, Kristin. "Chapter 1: Affording The Gold-Plated Diploma. Kiplingers Financing
College" (2003): 1. MasterFILE Premier. Web. 20 Sept. 2015.
Holland, Kelley. "The High Economic and Social Costs of Student Loan Debt." CNBC (2015).
<http://www.cnbc.com/2015/06/15/the-high-economic-and-social-costs-of-student-loandebt.html>.
ProCon Nonprofit. Is a College Educaiton Worth it? 1 January 2015. <http://collegeeducation.procon.org/>.
Ivanchev, Yavor. "Student Loan Debt: A Deeper Look." Monthly Labor Review (2014): 1-2.
Corporate ResourceNet. Web. 20 Sept. 2015.

Nardi 14
Kamenetz, Anya. Free College for All: Dream, Promise or Fantasy? 19 June 2014.
<http://www.npr.org/sections/ed/2014/06/19/322563525/free-college-for-all-dreampromise-or-fantasy>.
Kim, Jinhee, Swarn Chatterjee, and Jung Eun Kim. "Outstanding AFCPE[R] Conference Paper:
Debt Burden Of Young Adults In The United States." Journal Of Financial Counseling
And Planning 23.2 (2012): 55-67. ERIC. Web. 20 Sept. 2015.
Razaki, Khalid A., Wayne Koprowski, and Deborah L. Lindberg. "The Student Loan Crisis:
Background, Motivations Of Participants, And Regulatory Issues." Journal Of Business
& Accounting 7.1 (2014): 94-105. Business Source Elite. Web. 20 Sept. 2015.
Sanders, Bernie. Remarks at the Democratic National Committee. 28 August 2015.
<https://berniesanders.com/remarks-at-the-democratic-national-committee/>.
Yi, Alexander. "Reforming The Student Debt Market: Income-Related Repayment Plans Or
Risk-Based Loans?" Virginia Journal of Social Policy & The Law 21.3 (2014): 511-546.
Academic Search Complete. Web. 20 Sept. 2015.