RUNNING HEAD: Debt for Education 1

Debt for Education

Jeanette Darger, Lauren Buccambuso and Scott Labrum
Engl 2010
July 22, 2014








RUNNING HEAD: Debt for Education 2


Abstract
Student loan debt has skyrocketed in the last 20 years. With tuition costs at an all-time high,
debate surrounds the government involvement in student loans: one side in opposition to the
governments involvement and the other for the continuation, but revision, of current student
loan policies. After reviewing the impact of these loans to enrollment in college and cost to the
school itself, we propose that through proper education of the financing options available to
borrowers as well as support programs for individuals managing student loan debt, we can
reduce the default rates and continue to provide Americans with the promise of a bright future
through higher education.

Keywords: Student Debt, rising tuition, government involvement, laws
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Debt for Education
In March of 2014, the University of Utah approved an increase of tuition costs by 5.9%.
They announced that the increase would cost an in-state, full-time student and extra $438 per
year, but would benefit the school with more academic advisors, campus maintenance and pay
increases for their staff (Whitehurst, 2014). The state of Utah has followed suit and the Utah
Board of Regents approved a statewide increase in tuition for public colleges and universities by
4%. Prices rising is something completely normal, food costs go up, your prices at the pump are
always changing, it all a part of the inflation of our economy, right? According to Jeffrey
Williams article, Debt Education: Bad for the Young and Bad for America, the rate tuition fees
increase is three times the rate of inflation (2006).
With tuition costs not showing any signs of slowing down, how are students paying for
college? With government guaranteed student loans. Currently, the average student graduates
with over $22,000 in debt and as of today over $84 billion of those student loans are either past
due or in default. The rates of student loans not being repaid are the highest that they have been
since 1995 (American Student Assistance, 2014). There have been several debates on how to
address the concerns of these default loans: for example, the government needs to stop
interfering with college loans to limit the number of student relying on them to pay for school, or
the government needs to put into place ways for the debt not to consume a students life and
make repayment more manageable through debt forgiveness and reasonable interest rates.
Government involvement with student loans is necessary to allow more individuals to pursue
higher education, and allow schools to reinvest in their programs; the more realistic approach to
this government involvement is through proper education of the lending options available to
students as well as the successful management of debt repayment.
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We as a country need to find solutions for assisting students manage their student debt as
the only way for most students to attend college is by accumulating massive amounts of student
loan debt. The counterpart of the argument states that the government should not guarantee the
loans taken by students as they are high risk, higher interest rates, and higher default rates than a
standard loan and should limit their involvement all together. The oppositions argument is that
people should work to pay for school like they always have and those students that cant afford it
on their own would not be able to attend. What this argument lacks, is the fact that working your
way through college is not possible with the higher tuition costs. During the 1960s, a student
could work fifteen hours a week at minimum wage during the school term, and 40 hours a week
during the summer in order to pay their college tuition. Now, recent statistics show that a
student would need to work 52 hours per week all year long in order to afford their college
education from a public university (Williams, 2006).
Peter Schiff poses and additional argument against government involvement in student
loans for higher education. Schiff states that the increased cost for a college education is driven
by the government guaranteed loans. His stance is that the tuition costs are going up because the
universities know that students can take out the money and have it guaranteed. If students
couldnt borrow so easily, colleges would lower prices since not as many people would be able
to attend their schools and drive up the prices. He then states that schools would then no longer
spend their money frivolously on new gymnasiums, upgrades to their campus and other
unnecessary upgrades; however, if there are less students going to the schools because they
cannot afford the tuition costs, schools would have to adjust their staffing, would have to invest
less in the programs that keep their degree programs relevant and would not be able to keep up
with the ever changing technological advances needed in our workforces. Not offering
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guaranteed loans may help the tuition costs decrease, but it would also impact the quality of
programs and the value of the degrees the students obtain from college (Carew and Schiff, 2012).
Government student loans give everyone the opportunity to pursue higher education and
obtain a college degree. I understand the other sides point of limiting government involvement,
but these loans are an investment in our people and deserve to be a priority for our government.
Everyone who has the ambition and determination to better themselves through higher education
deserves to have the opportunity to do so. Student loans are necessary and the majority of the
negatives can be changed. Recently, President Obama proposed that changes be made to the
way student loans are handled in the US. Part of his plan includes a cap on monthly payments to
10% of a borrowers disposable income and forgiveness of the debt after 20 years.
With the Presidents proposed changes to help manage tuition re-payment for college
students, the opposition simply wants to remove government guaranteed student loans from the
equation all together, and rely on their personal income to pay for classes, but that will
negatively impact the schools ability to reinvest in their universities and the programs that they
offer on top of limiting who has the option to pursue a higher education. Keep student loans
available for students and find viable solutions to improve their negative side effects.

Proposal
So how do we address the issue of student loan debt? The solution to this problem lies with
both the American people and the elected officials whose job is to serve the interest of the
people. We need strong legislation that provides support to the borrower, with proper education
of financial aid options, particularly to those most vulnerable for default, and strengthened
support options for those repaying debt, to be able to manage this debt effectively. All of this is
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within our reach through the Health Care and Reconciliation Act proposed by our current
Administration.
It is unreasonable to expect borrowers to be able to identify the most beneficial financial
aid options and repayment plans in a system with very little clarity that does little to nothing to
ensure they are aware of all options and responsibilities before entering into a debt agreement.
Student loans are the closest thing in the U.S. to a financial product marketed directly to
children. It's time we put up better safety rails for the borrowers. (Weissmann, 2013) These
safety rails Weissmann is referring to include proper education of the financial aid options
available to individuals as well as their options for repayment of this debt. We have a student
debt system that leaves the most vulnerable, least sophisticated borrowers to fend for themselves.
And we're seeing the unfortunate results in our default rates. (Weissmann, 2013) The highest
rate of default on student loans exists for those that are less educated and more impoverished.
The legislation put forth by the administration will ensure borrowers complete an entry and exit
counseling process for any student loan or financial aid arrangement taken out. This will ensure
they are made aware of all financial responsibility and repayment options available to them to
assist in avoiding default. Educating these borrowers is critical in making an improvement in
default rates.
Some opponents of this legislation argue that the government has no place in financing
students for higher education. Without federal student loans people would be left with the
responsibility of paying the full cost of tuition upfront or seeking loans from private lending
institutions. Only wealthy individuals would be able to afford a college education. The less
fortunate would likely not qualify for loans based on income. We would limit the potential of so
many young people who aspire to achieve a higher education simply because they dont
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currently have the means or credit rating to finance their own education. The solution isnt to
isolate those who need assistance, but to empower them with the tools they need to borrow
responsibly.
We have addressed how to educate and empower these borrowers, but what happens when
the borrower graduates and moves into a job that isnt paying enough to properly manage this
newly added debt? Or even worse, the borrowers who cannot find employment after they
complete school? This is where we need to provide assistance to those already dealing with the
weight and financial stress of managing student loan debt. Through the legislation being
proposed, the income based repayment (IBR) plan will be expanded for federal student loans.
More than 1.2 million borrowers are projected to qualify and take part in the expanded IBR
program. (Biden, 2014) Under the new law, students enrolling in 2014 or later can choose to:
Limit payments to 10 percent of their income. This is a reduction from the current
law that requires 15 percent. This means that more than 1 million borrowers would
be able to reduce their monthly payment, further reducing the likelihood of default.
Forgive any remaining debt after 20 years, or 10 years for those in public service if
consistent repayment has taken place. This reinforces the importance of the
borrower taking responsibility for their debt obligation and rewards consistent
payment of this debt.
By providing support to those individuals dealing with the excessive amount of debt, we
strengthen our economy by reducing default rates, investing in higher education, and supporting
the working Americans that will be entering into this job market.
The issue of student debt has recently increased following the rising cost of tuition. Action
needs to be taken immediately to address this issue. We need our elected officials to support this
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reform and help impact change. Americans are now carrying student loan debt of over $1
trillion, $125 billion of it added just in the first three months of this year. (Ifill, 2012) Student
loan debt is the largest form of debt in the United States, with the exception of mortgages. It is
larger than debt on car loans, credit cards and home equity loans. (Vedder, 2012) And with 40
million Americans having debt to the Government, we all stand to lose something in a society
that continues this cycle of sending our children off to school in a system that only sets them up
for financial failure.


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References

American Student Assistance (2014) Student Loan Statistic. Retrieved from:
http://www.asa.org/policy/resources/stats/

Biden, J. (2014, June 9). FACTSHEET: Making Student Loans More Affordable. The White
House. Retrieved from http://www.whitehouse.gov/the-press-
office/2014/06/09/factsheet-making-student-loans-more-affordable

Hiltonsmith, R. (ND) At What Cost? How Student Debt Reduces Lifetime Wealth. Demos.
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wealth

Huddleston, C. (2012). 7 Solutions for Student Debt. Kiplinger's Personal Finance, 66(7), 58.

Ifill, G., Vedder, R. (2013). Will Loan Forgiveness Offer Long-Term Student Debt Solution?
PBS. Retrieved from: http://www.pbs.org/newshour/bb/will-forgiving-loans-offer-long-
term-student-debt-solution/


Schiff, P. (July 2012) Why the Government Should Not Be in the Student Loan Business. CNBC.
Retrieved from: http://commonsensecapitalism.blogspot.com/

Weissmann, J. (2013, August 8). Our Student Loan System is Broken, and These New Statistics
Prove It. The Atlantic. Retrieved from:
http://www.theatlantic.com/business/archive/2013/08/our-student-loan-system-is-broken-
and-these-new-statistics-prove-it/278453/

Whitehurst, L. (March, 2014) University of Utah Approves 5.9 Percent Tuition Hike. The Salt
Lake Tribune. Retrieved from: http://www.sltrib.com/sltrib/news/57661741-78/tuition-
increase-students-percent.html.csp


Williams, J. (2006). Debt Education: Bad for the Young, Bad for America. Dissent Magazine.
Retrieved from: http://www.dissentmagazine.org/article/debt-education-bad-for-the-
young-bad-for-america

Woo, J. (October 2013). Degrees of Debt- Student Borrowing and Loan Repayment of
Bachelors Degree Recipients 1 Year After Graduating: 1994, 2001, and 2009. NCES.
Retrieved from: http://nces.ed.gov/pubs2014/2014011.pdf

Wood, B. (March, 2014) Regents Approve 4% Statewide Tuition Increase. Deseret News.
Retrieved from: http://www.deseretnews.com/article/865599693/Regents-approve-4-
statewide-tuition-increase.html?pg=all