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The Student Loan Debt Crisis Research Paper

Student loan debt has become one of the largest forms of consumer borrowing in the

Unites States due to the rising cost of college and a weakening job market. There is

approximately 1.77 trillion dollars in total student loan debt in the US, highlighting the

importance of discussing how to reduce these student loans. Policymakers need to focus on the

student debt issue and provide a solution that can take the pressure off students while also

maintaining a safe place in the economy. With the current rise in student loan debt and college

tuition costs, the United States government should implement policies, such as targeted debt

relief, and promote alternatives to 4-year degrees in order to curb rising student debt.

Background

As part of his Great Society initiative, President Lyndon Johnson signed the Higher

Education Act (HEA) in 1965. The HEA was intended to provide every high school senior with

the opportunity to attend the college or university of their choosing regardless of their income

level. The act sets up the United States federal government as the primary source of financial aid

for students. Over the last several decades since the enactment of the HEA, the amount of money

borrowed by the individual student as well as the number of students following the path to higher

education has increased dramatically, leading to outstanding student debt. Following the

financial crisis of 2007-2009, several financial cuts in state funding for public colleges and

universities have driven up the price of college tuition, making higher education less affordable

and less accessible in today's economy (Bynoe 2017).

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Student Debt Statistics

As of 2023, the current US student debt total stands at 1.77 trillion US dollars, an

increase of 66 percent over the last decade. Students of low and moderate household incomes as

well as communities of color are disproportionately affected by student loan debt. Rising student

debt poses a risk to the broader economy of the United States, since consumption declines when

individuals and families have outstanding debts to pay. According to the Aspen Institute, 58% of

student loan borrowers attribute a decline in their credit score due to their outstanding student

debt. Household debt in relation to student loans delays homebuying and the ability to take out

auto loans. Bynoe et al.(2017) has found that from the years of 2005-2015, the number of those

from 23-26 years of age who live with their parents has increased by 11.5% . On average, there

is a 7-year delay for young student borrowers from when they want to buy a home to when they

are able to purchase one (Aspen 2023).

Not only do student loans affect the economy, but they also have an impact on

employment retention. An employee's outstanding debt influences their decision when seeking

out and accepting job offers. They are more likely to look for employers and companies who are

willing to assist with student loans. According to ADP research institute, “Any level of student

debt increases a worker’s intent to leave, but people with the biggest outstanding student loans

are twice as likely to be looking elsewhere compared to those who have no student debt”

(Northup 2023). This negatively impacts companies since they are losing employees due to their

burdens of student debt.

Student loan debt is also disproportionately held by students of color, which grows the

already existing racial wealth gap. These students are more likely to navigate loan payments on

their own, along with experiencing the greater repercussions of graduating with student debt. The
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Aspen Institute finds that, “a quarter of borrowers of color are currently in default, and almost

30% are unsure if they can make their next payment. Almost 40% of black borrowers drop out

with outstanding debt and struggle to pay back the amount” (Aspen 2023) Outstanding student

debt impacts students of color in several aspects of life, such as credit checks for housing and job

applications. It is important to take in several factors, one of which being race, when deciding

how to target student loan debt.

Policy Options

As student debt continues to rise, there has become greater debate on how to lower it.

Researchers at Claremont Graduate University have focused on several proposed policies that

could potentially lower the annual student debt. They test the policies themselves and their

effectiveness on lowering the debt. They also analyze the effects the policies would have on the

economy as a whole by predicting what the real GDP, inflation, and unemployment would be

after the policy is implemented. Universal Debt Forgiveness, Income Based Repayment (IBR)

plans, and Targeted Debt Relief (TDR) plans are the main policies that were tested (Akhalagi

2023).

With the Universal Debt Forgiveness plan, student loans would be forgiven on a national

scale. Proponents for universal student loan debt cancellation argue that it could reduce the

financial burdens of many while also stimulating the economy. If debt from student loans is no

longer a factor, a greater number of individuals would in theory be willing to buy houses, cars,

etc, giving the economy a boost. Critics of universal debt forgiveness argue about the overall

fairness of the plan. They fear that the plan would not take into consideration individuals who
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were responsible with their debt versus individuals who engaged in risky financial behavior

(Akhalagi 2023).

The Income Based Repayment plan ties the payment of student loans with an individual's

monthly income and family size. Proponents argue that this plan aims to make loan payments

more manageable by adjusting the payments according to monthly income, which can greatly

benefit low-income students. There is also greater financial flexibility, since periods of time

where individuals earn a lower income reflect the amount of student loans charged that month.

Critics argue that it negatively impacts borrowers financially in the long run, since they may be

paying a greater interest over the repayment period, even if the monthly payment is lower

(Akhalagi 2023).

The Targeted Debt Relief Plan addresses certain groups or categories of individuals for

debt forgiveness/relief, which is different from the universal approach. The types of categories

could vary, for example, individuals could qualify for debt relief through this plan based on their

income level, type of debt, profession, or specific economic circumstances. Proponents of this

plan believe that assistance will be given to borrowers who need it most and there will be greater

fiscal sustainability compared to the universal approach. Critics argue that the plan may not

account for all circumstances due to the administrative complexities that play into assessing each

individual's needs (Akhalagi 2023).

While taking into account each plan's advantages and drawbacks, the researchers created

a financial model which demonstrates the economic benefit of each plan. The research concludes

that the best method to lower student debt while also stimulating the economy is the targeted

debt relief plan, as there are significant improvements in GDP, lower inflation and

unemployment, compared to the other plans (Akhalagi 2023).

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Alternatives to College

The number of students who pursue four-year degrees has steadily increased over the

years, which is one of the factors that contribute to the growing amount of student debt. Preston

Cooper, a senior fellow at the Foundation for Research on Equal Opportunity, states that “The

scales are tipped against alternatives such as apprenticeships, workforce training, and the pursuit

of industry-recognized credentials” (Cooper 2022). There are many other opportunities for

students to make an income that does not rely on obtaining a 4-year degree, but the government

loans and grants favor the path to college and university. Colleges feel less competitive pressure

to lower their prices due to the few alternatives to the bachelor's degree, and it does not help that

the bachelor's degree is in high demand for more jobs than needed 30 years ago (Cooper 2022).

Conclusion

Overall, student loans are one of the biggest sources of debt currently in the United

States, but there are ways to lower them and stimulate the economy. The Targeted Debt Relief

plan is one way to lower the total debt coming from student loans by choosing specific groups

that are in most need of debt cancellation. Along with this plan, the United States government

could use funding to expand programs which promote other options that are not 4-year degrees,

such as CTE classes in high schools which could prepare interested students for trade schools.
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Works Cited

Aspen. 2023. “Making the Case: Solving the Student Debt Crisis - the Aspen Institute.” The

Aspen Institute. October 11, 2023. https://www.aspeninstitute.org/publications/solving-

the-student-debt-crisis/

Akhlaghi, Emelia. "Opportunity Cost of Student Loan Debt Forgiveness: Testing the Impact of

Four Policy Options on United States’ Economy." Order No. 30570894, The Claremont

Graduate University, 2023. In PROQUESTMS ProQuest Dissertations & Theses Global,

https://eznvcc.vccs.edu/login?url=https://www.proquest.com/dissertations-theses/

opportunity-cost-student-loan-debt-forgiveness/docview/2871584518/se-2.
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Bynoe, Anne J., and Maryann J. Fogarty Di Liberto. “An Analysis of the Student Loan Debt

Crisis in the United States: The Causes, the Current Status, and the Future of Indebted

Students.” Proceedings of the Northeast Business & Economics Association, January 2017,

57–62. https://search-ebscohost-com.eznvcc.vccs.edu/login.aspx?

direct=true&db=bth&AN=134235247&site=ehost-live&scope=site.

Cooper, Preston. "Why College (Still) Costs Too Much." National Review, February 19, 2022.

Quoted in "Policymakers Must Address the Root Causes of Tuition Inflation." Gale

Opposing Viewpoints Online Collection. Farmington Hills, MI: Gale, 2023. Gale In

Context: Opposing Viewpoints (accessed December 18, 2023). https://link-gale-

com.eznvcc.vccs.edu/apps/doc/KYQDSI349127876/OVIC?

u=viva2_nvcc&sid=bookmark-OVIC&xid=b27ba398.

Northup, Jared. 2023. “Employers and Student Debt - ADP Research Institute.” ADP Research

Institute. November 14, 2023. https://www.adpri.org/employers-and-student-debt/.