There’s no way around it: Americans are drowning in student loan debt, collectively owing $1.5 trillion. Rising college costs mean that number isn’t likely to drop much in the next few decades.
The average student borrower takes out around $26,000 in loans over the course of a bachelor’s degree — debt that’s impossible to discharge in bankruptcy, difficult to have forgiven and increasingly unlikely to be fully repaid on schedule.
Here’s a look at the costs of that debt and what’s being done to lessen the crisis.
The Direct Cost
New research shows that student debt load is making Americans less likely to buy homes or start families, and more likely to live at home and take jobs just to make ends meet, instead of the more lucrative positions for which their degrees prepared them.
Short-term solutions include deferring loans by returning to school, or consolidating or borrowing from private lenders, which ends up making the problem worse. For students graduating into a tight job market whose credit ratings are impacted by the amounts they owe, loan debt can remain their chief financial concern for decades.
What’s more, the expanding student loan bubble could rattle the entire American economy in similar ways to the 2008 housing crisis, if borrowers default on loans in large numbers.
The Hidden Cost
The direct costs of student loan debt are obvious, but hidden costs often prevent lower-income students from pursuing the highest-value degrees.
Because the most selective, prestigious institutions are also the most expensive, those institutions are disproportionately populated by students from affluent families able to afford the burden of early-career debt. And the recent trend of “differential pricing,” in which tuition costs are dictated by a student’s field of study, has had an effect on enrollment in high-employment fields, potentially scaring off the students who could benefit the most from an in-demand degree.
Easing the Crisis
Organizations such as Scholarship America are working to alleviate the crisis. As the nation’s largest provider of private-sector scholarships, they deliver their most direct impact by giving students funding for higher education — $264 million last year, and more than $4 billion over its history.
The organization is also lending support to nationwide efforts to reduce dependence on student loans. They’ve mobilized a network of postsecondary institutions, or Collegiate Partners, that agree to not punish scholarship recipients with reductions in financial aid; and their Dreamkeepers Emergency Financial Assistance program gives students facing unexpected expenses an alternative to loans. President and CEO Robert C. Ballard sits on the National Advisory Board of the College Promise Campaign, which is developing innovative public-private partnerships to help students earn their associate degrees tuition-free.
“We work with partners to incorporate mentoring, tutoring and financial literacy education into scholarship awards in an effort to help students persist and graduate rather than drop out with debt or get stuck short of a degree,” said Ballard.
No single funder, college or organization will solve the student loan bubble crisis, and it won’t happen overnight. But by working together, the public, private and higher education sectors can continue to reduce student loan debt.