Student's debt crisis in USA, an analytical study




The rise of prices of goods and services or the diminishing value of a currency is a pain-point for all consumers. Whist in economics, inflation is correlated with improved living standards in the long-run, it is only possible if wages increase at a faster rate than the prices of consumer goods. In the present times, what may seem like a fantasy was very much the case in the late 1900s USA. Over the last 20 years, wages have barely increased, nonetheless, products and services have seen a cumulative price increase of 92.22%. On the other hand, the dollar had an average inflation rate of 2.36% per year between 1990 and 2018


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In the early years of the conception of policies that supported student loans, slogans like, “poverty must not be a bar to learning, and learning must offer an escape from poverty”, grew to become rather popular. More than 90% of the student debt was subsidised by the federal government, back then, in the initial years. An alarming statistic of 7 in 10 college students in the USA graduated with student debt in 2013.



The total bill due from students amounts to $1trillion. The aggregate amounting to more than credit card debt and auto loans combined; second only to mortgages. Since 2003-2013, student debt has tripled. An important reason why the federal student loan program has undergone such massive inflation, is because states have slashed education funding by 23% around 2010. On the other hand, public institutions raised tuition rates by 27%, to keep up with the running costs.




A natural consequence of these budget cuts is also a large reduction in the capacity of certain community colleges. Nonetheless, the majority of the student loans are taken out by those in for-profit institutions. Interestingly, around 20-25% of these funds are used by the for-profit universities for their sales, marketing, and ads revenues, that has nothing to do witht the quality of education; whilst the faculty are paid around 10% of the funds. During the first term, the Obama administration had released a finalised list of regulations to private universities ensuring “gainful employment” of students, not observing which would result in a loss of access of these institutes to the federal student aid. Following which there was ferocious lobbying by the APSCU or the Association of Private Sector Colleges and Universities on which $10 million were spent. This campaign was successful, after which the rules were weakened and later struck down. Since then, the debt has now amounted to over $1.86 trillion affecting over 44.7 million American lives.




The US Department of Education had paused the repayment of federal student debt loans, which is outstanding from 42.3 million Americans, temporarily during the pandemic. The collection is set to resume from the 1st of February 2022. A survey by the Student Debt Crisis Center revealed that 89% of those indebted are in no financial position to resume the repayments based on a sample of more than 33,000 people. Further exacerbating the gross inequities that already existed amongst those already marginalised and those belonging minority communities. Black college graduates owe an average of $7,400 more in student loans than white college graduates, and that gap more than triples to nearly $25,000 after four years from graduation.





Especially those with immigrant roots, who have low generational wealth accumulation, if not already pre-possessing a debt history, are further tortured with loan burdens that they spend the remainder of their lives, trying to mitigate. Student loans have the worst effect on those living near the poverty line, desiring to opt for higher educational degree to improve their standard of living and job prospects. A recent study showed that the median debt loans went from $40,209 in 2004, to $57,000 in 2012. To understand the extent of the student debt crisis, here’s some more facts: 1. An estimated 10% of recent borrowers defaulted on their loans within 2 years of graduation. 2. 1 in 7 people defaulted within the first 3 years of required payment. The legal procedures that make student debt different from other kinds of debt are that:

● It is non-dischargeable in bankruptcy.

● Loan collectors garnish wages;

● Intercepting tax refunds;

● Suing the debtor in court of law.




Thus making student debt the most collectable kind of debt. The reason why declaring bankruptcy does not absolve one from student debt is because the loan money comes from US taxpayers, not banks or private corporations, thereby giving rise to a need to protect taxpayers money. However student debt balances are forgiven in cases where one works for a public service organisation for over 20 years, after having paid during all the prior years. Even those earning 6-figure salaries, struggle to meet with the loan returns alongside other expenses, the most exhaustive being medical costs. Even those in well-paying professions like law, medicine, IT, struggle to save for retirement, alongside mortgage. This is leading to a massive homelessness crisis amongst the elderly in the USA, with obscure retirement benefits, and slim opportunities to ensure a decent living.



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