social issue: Student Loan Debts

Introduction
in America as well as the rest of the world, the rising costs of education has attracted a demand
for student loans to service educational needs of families. However, repayment of these student
loans has hit a record low partially due to labor market insecurities, rising credit needs and in
some cases, students are not committed to settling their debts. As a result, America is grappling
with a burdening student loan debts that accrue either because students have accumulated too
much debt to repay or because students receive too little credit in the first place to be able to
repay their loans even after graduation. A closer analysis of this issue herein analyzes the causes
and social impacts of student loan debts, examine the existing policies and frameworks currently
in place to address this social issue and the impacts-or expected impacts these policies. Lastly,
this analysis will present some models and recommendations that might provide sustainable
solutions to address this social issue.
Student loan debt issue
Student loan debts in the U.S in 2008 reached a whooping $1.3 trillion from 45 million
borrowers (Friedman, 2019) with more recent research reporting $1.71 trillion accrued from both
federal and private student loan debts. Federal student loans accumulated $1.57 trillion from 42.9
million federal borrowers (Hanson, 2021). According to Hanson (2021), the prevailing statistics
reflecting a debt crisis in the making as for the first time in federal student loan program history
that student loan debts have invoked a legislative action. Considering that the loans outweigh the
tuition costs by 353% and a deliquescence rate of 12.4% ($90.5 million), student loan debts
threaten not just the education system but the society on the whole.
Away from the economic effects of high student loan debts, policymakers are also concerned by
the effects on social institutions and livelihoods of those affected. For one, high student loans
undercut social mobility of those affected such that some end up postponing home purchases,
entrepreneurial practices, savings for emergencies, marriages and even childbearing (Holland,
2015). Holland also reports that rising student loan debts affects the promise of education as a
key to better life with most of the underprivileged lacking upward mobility in the society. As a
result, many Americans are shying away from making decisive financial decisions hence
affecting their social and economic patterns (Holland). The National Association of Social
Workers report on the experiences of social workers grappling with the effects of loan debts
reveals that some are unable to meet their own financial needs, and cannot pay the loans as they
are ever rising as a result of their high interest rates, and others project that they are likely to pay
the loans well into their retirements (NASW, n.d). furthermore, Despard and colleagues (2016)
research on the relationship between student debts and hardships found that healthcare
affordability and financial stability were affected by the high student loan debts.
The social effects of rising student loans are far reaching, and as Scholarship America (2021)
reports, high student debts loans are an economic drag especially because grads are forced to
settle for low-skill jobs, missing out on benefits of a good degree. Resultantly, such grads
become overly dependent on senior members of the community for survival leading to the
economic drag. Other social consequences include a decline in financial benefits of every degree
by 0.98% and 0.75% for men and women respectively and other disparities within social groups
such as 46% of blacks reporting postponing construction of homes due to debts and another 33%
of Hispanics reporting that they put off wedding for the same debt issues (Hanson, 2021). Rising
student loans are evidenced to affect students taking professional courses such as Law,
Engineering, Medicine, business among others hence the majority of the student loans are owed
by elite schools (Looney). Looney indicates that while student debt loan is an emerging issue
social issue, it exhibits tenets of discrimination according to class and race such that the effects
are more severe for black and Hispanic Americans compared to their white counter parts.
causes of student loan debts
some of the causes of this social issues is increased tuition and fees, decreased state funding, and
decline in degree values. The cost of college attendance has increased by 6.8%, growing at a rate
of 196.2% faster than currency inflation and 89.2% of wage inflation (Hanson, 2021). The cost
of attending a 2-year college has increased by 41.2% between 2010 and 2020. A 4 year has
increased by 34.3% for public institution and 48.9% at private institutions. The rationale is that
rising debts would not be the case if colleges were affordable.
Even then, the cost of education could be supplemented by the federal student financial program
which is not the case because the magnitude and nature if student finance has reduced.
According to reports, state funding in 2018 was $6.6 billion less than in 2008 after adjusting for
inflation (Mitchell et al, 2019). The deep cuts in funding have increased the costs of tuition fees
and on the larger scale increased racial and class inequality since high education costs affects
low-income students and students of color. Rising tuition, as a result, forces students and their
families to forego education, or settle for onerous debts that in the end maybe unable to pay back
due to a fall in value of degrees in the labor market. Drastic policy changes need to be enacted
for students to access affordable postsecondary education such as focusing on need-based aid
programs instead of merit-based programs to benefit needy students (Mitchell et al., 2019).
The uncertainty of the labor market in US has also increased considerably, with unemployment
on the rise regardless of academic qualification / background. Persistent shocks in the labor
market puts borrowers in a precarious position that threatens their ability to repay their loans in
full. Persistent transition shocks can also impede loan maintenance for some years without any
income contingency before the borrowers can find their feet (Lochner & Naranjo, 2015).
Student Loan Forgiveness Policies
Grads who work for certain employers can qualify for loan forgiveness under the PSLF program
but is only available for direct loans. The PSLF program forgives the remaining loans provided
the candidate has made 120 monthly payments while working for the employer. Considering the
implications of these proposals under the PSLF program, this analysis will look into the various
policies that can be applied in Student loan forgiveness program. The focus of this analysis
provides policy option for federal school loans as they form 92% of all outstanding student loan
debts and because such policies can only be addressed by the federal government as the loans are
held by the federal government. In this regard, this report will analyze a) forgiveness of all
student loans policy and b) forgiveness up to a set dollar policy.
Policy options for Student Loan Forgiveness
a. Forgiveness of all Student Loans policy
Under this policy, the federal government would be required to cancel all outstanding loans and
also waiver taxations on foreign amounts. This policy is estimated to cost $1.5 trillion plus an
unmentioned cost from interest payments and costs from not taxing forgiven amounts (Miller et
al., 2019). Policymakers and stakeholders have analyzed the effects of such a policy with the
general agreement suggesting that the policy must meet the minimum threshold of equity, social
impact and meaningful relief. Lonney (2021) put the subject of loan forgiveness into fiscal focus
and found that forgiving all student loans would cost more than the costs of Unemployment
Insurance, food stamps and even housing grants for the last 20 years cumulatively (Looney,
2021). These estimates are, indeed, too large to consider. however, the social impact and equity
value counts. Miller et al. (2019) argues that forgiving all debt would rid debts for the whole
population hence providing equity. However, that would also mean that the policy would benefit
students who are able to service their loans such that those with higher balances but are not
struggling would receive a windfall. In such a case, the greatest beneficiaries of the policy would
be borrowers with highest balances regardless of their ability to settle the loans. Other reports
estimate that this policy would also stimulate national gross domestic products. Fullwiller et al
(2018) simulations on the macroeconomic effects of cancelling all student loans reveals that
unemployment rates would reduce by 0.22 to 0.36% percentage points, an increased GDP and a
50-70% additional job creation compared to the 2010-2015 expansion. The researchers also
found that inflation and interest rates would rise, but not to a great deal. The only concern would
be the effects on the government’s budget which the simulations estimates will increase deficit
ratio to a small extent (P.46). to solve on the issues of expenditure and specificity, Miller et all’s
(2019) proposals to limit the distribution to undergrads alone suffices to reach the most affected,
and the most needing of students.
b. Forgiving up to a set dollar amount for all students
The most common set dollar amounts are $10,000, $25,000 and $50,000 that will clear all the
debts below the specified level. In an experiment conducted by the Social Policy Institute on how
participants would respond to the different levels of loan forgiveness to measure the effects of
debt forgiveness and household behaviors;
i. Higher amounts of debt forgiveness correlated with more investment behaviors such
as savings, mortgage, and willingness to spend on entertainment
ii. $10,000 debt forgiveness increased chances of individuals having a child than if they
got $5,000 debt forgiveness
iii. Higher debt forgiveness correlated with higher purchasing power for better food,
utilities such as cars and more savings for retirement and emergencies.
Kantrowitz (2019) examination of the possible policy options, forgiving students with $10,000 or
less will free up 15 million students which is a third of all the general population and a majority
of loan defaulters. The analysis also provides that 53.6% of students in default owed less than
$20,000 therefore settling their debt would cost the government $628B and remain with about
$939 billion. If $50,000 or less was the criteria to forgive the debts, it would solve debts for
79.6% of the total debt, costing the government $1 trillion, and a remaining $518B that can be
assumed to belong to those students from households that earn more than $100,000. The results
are summarized below:
AMOUNT % BORROWERS COST FOR THE DEBT
FORGIVEN WITH ALL DEBT FEDERAL REMAINING
ERASED GOVERNMENT
$0 0.0% $0 $1,567B
$5,000 17.4% $209B $1,358B
$10,000 33.6% $377B $1,190B
$20,000 53.8% $628B $939B
$50,000 79.6% $1,049B $518B

Derived from Student Aid Policy Papers (Kantrowitz, 2020).

The equality measure of the above policies is varied depending on the level chosen, and other
considerations such as impact on race and ethnic affiliations also proving that the method can
promote equity. The policy, according to Miller and colleagues (2019) is fairly simple and easy
to administer as long as borrowers are not subjected to tax consequences. As a value of
maximum relief, the policy offers maximum relief depending on the borrowers’ deficit and the
level chosen for application, and the biggest beneficiaries are those forgiven with higher amounts
forgiven. From an analysis of the given implications of the different structures in this policy,
forgiving debts at each level has a potential of securing debts for individuals who do not need
assistance unless targeted to undergraduate loans and consideration of current earnings of the
persons involved. if student loan forgiveness is to be targeted to borrowers according to their
income at the time, the policy will cost even less as analyzed by Kantrowitz (2020). The results
are presented below
Total Amount MAXIMUM
Forgiven INCOME
$25,000 $50,000 $75,000 $100,000
$10,000 $8 billion $19 billion $32 billion $40b
$20,000 $25 billion $56 billion $91 billion $113b
$50,000 $65 billion $184 billion $281 billion $345b
$70,000 $85 billion $254 billion $385 billion $475b