What Will It Take to Solve the Student Loan Crisis?

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What Will It Take to Solve the Student Loan Crisis?

The history, size, and complexity of the student loan crisis, combined with the interlocking, interdependent higher education networks – universities, lending institutions, and government agencies – defy simplistic reforms and have largely immunized the student loan industry from having to make significant changes. These institutions and agencies have erected a financing superstructure that meets the immediate needs of students and universities for cash, but dramatically fails the test for long-term cost effectiveness and economic sustainability. We are long overdue for genuine, transformative reform. But one thing has become increasingly clear: solutions to the high cost of higher education and the student loan crisis will not come from the higher education establishment. Our colleges and universities, their presidents, boards of trustees, state higher education systems, and the dozen or more higher education associations in Washington, D.C., have serious conflicts of interest on this issue and will not be the source of cost-cutting reforms.

Every day, there are news stories about the college tuition crisis. But what is the crisis we are seeking to solve? Is it the staggering amount of student debt? The rapidly rising cost of higher education? The interest being collected on student loans? The high default rate on student loans? Or all of the above?

Insight Center

The central problem for many is the accumulated student loan debt. At nearly $1.6 trillion, student loan debt exceeds accumulated car loans and even credit card debt. By almost any definition, this is a crisis: It is certainly a crisis for those with student loan debts whose repayment schedules span decades, with large monthly payments. It is also a crisis for lenders experiencing significant default rates and, perhaps, a crisis for the federal government, as it guarantees these student loans. Many argue that it is also a crisis for our nation’s economy; servicing this debt has a chilling effect on the sale of houses, cars, appliances, and furniture, as well as spending for vacations and luxury items.

But student debt is only one part of a much larger crisis. This debt, regrettably, is on a trajectory to grow much larger in the future. Economists project an accumulated student loan debt of $2 trillion by 2021, and, at a growth rate of 7% a year, as much as $3 trillion or more by the end of the next decade.

The fallout from the student loan crisis goes far beyond the debtors’ finances. In addition to the ordinary financial pressures and obligations that come with young adulthood, studies show that many of those struggling to repay these mountainous student loans are also experiencing serious mental health problems, caused in large part by the crushing weight of these loans.

The Future of Education

The history, size, and complexity of the student loan crisis, combined with the interlocking, interdependent higher education networks – universities, lending institutions, and government agencies – defy simplistic reforms and have largely immunized the student loan industry from having to make significant changes. These institutions and agencies have erected a financing superstructure that meets the immediate needs of students and universities for cash, but dramatically fails the test for long-term cost effectiveness and economic sustainability.

The immediate task is to find relief for those former students who sought or were counseled into large, multi-year loans that have now come due. This diverse body of student debtors has individually complex situations that virtually guarantee that there would be no “one size fits all” solution. The current proposal for transferring payday loans with no credit check Wyoming the totality of this $1.6 trillion debt to the taxpayers does not pass the fairness test, although there are those building a case for a taxpayer bailout, especially in light of the fact that the U.S. government has already bailed out several large lending institutions.

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