1

[Your Name]

[Instructor Name]

[Course Number]

[Date]

Error: Reference source not found

Higher education is the motor of the advance of a country's economy. Innovation,

creativity, critical thinkings are skills developed during under and graduate schools. Students are

the future leaders. However, how can somebody lead a country when they are in debt? While

President Biden is proposing a plan to reduce the cost of education for several million low-

income families and studying the possibility of forgiving the debt of 45 million students, the

problem is more complex. In 2019, student loans reached 1.6 trillion dollars, which was almost

8% of the national income (Ingraham), when over a decade before was only half of the current

amount. Student loans affect individuals and the state. The problem, for example, has an adverse

effect on marriage. According to a study from 2014, there is a relationship between the

repayment schedule of student loans and marriage in females (Ingraham). Higher loans decrease

the possibility of marriage in the first four years after graduation (Ingraham). This is one

example of the influence of student debt on individuals.

However, there are other effects, such as the effects on the economy of the country that

must be taken into account, the benefits of reducing the student debt, and the possibility of

canceling the actual debt and transform education into public tuition-free colleges. Countries like

Finland offers free education for all nationalities, only charging students for bachelor's or
 2

master's degrees taught in English. Several other countries in Europe also offer free access or

almost free higher education to a citizen of the European Union. Germany, Norway, Sweden,

France, Belgium, Czech Republic, Greece, and Spain offer not only inexpensive education but

also the best quality. European countries offer free education, but South American countries also

have free higher education for their citizens. Countries like Argentina, with a solid system of

public free universities, have a couple of winners of the Nobel Prize. The research question, in

this case, is how free higher education would affect the economy and the quality of education.

Background

In the spring of 2016, 2 million Americans graduated from college, and almost two-thirds

of them carried the burden of student loans due to the increment of education costs (Weidner). At

the same time, college-related costs double, student loans tripled (Weidner). To add more

difficulties to an already complex situation, wages for graduates have not increased during the

decades before the study. Considering that recent graduates have more difficulties repaying their

loans than older graduates, it is interesting to study how this situation influences their income

and career-related decisions. According to the Washington Post (Ingraham), the burden of

student loans also hinders the formation of new businesses due to the risk-avoidance of the new

graduates. There are several other aspects of the economic life of graduates that are deeply

influenced by student debt.

Will a recent graduate, who landed in their first employment after graduation, invest in

buying a house? Certainly not. The reason is simple: most recent graduates have used all the

loans they can get to finish their careers. Student loans, credit card loans, personal loans make

getting a loan to purchase a house almost impossible. Another issue related to student loans is

that the repayment amount increases with time according to the new interest rates and the length
 3

of the repayment plan, which will hamper the opportunities of weathering financial crisis.

Student debts affect new families, new businesses, new homeowners and prevent young people

from saving for retirement, leading to impoverished retired populations. It also means that young

graduates will have to accept jobs with lower salaries and fewer benefits. While a college degree

was a specific factor of social mobilization in the seventies, it currently is like a baseline

requirement for any employment, upskilling positions in highly concentrated markets, which

leads to the necessity of specialized skills to be accepted in an entering position (Ingraham).

However, the current pandemic is the nail in the coffin of a significant percentage of

American families. President Biden's first measure was extending the pause in student loan

repayment until September 30, 2021. However, that was not the only measure because, on April

28, the American Families Plan was revealed by the White House. The plan that intends to invest

$1.8 trillion still needs the approval of Congress. Among the announced proposal was the

increment of Pell Grants, the provision for free community colleges, and stepping up the aid for

schools serving minorities (Lane et al.). Since the inauguration of the presidency, Biden agrees

that at least $10 thousand should be pardoned by a bill from Congress; however, nothing has

been solved yet. Moreover, two-thirds of the borrowers have debts higher than that sum (Lane et

al.). Students and graduates with less than $10K would have their debt wholly canceled.

Like self-help books trying to tackle the emotional problems resulting from the

pandemic, countless websites are trying to help students reduce the number of loans. While there

is no agreement about what to do to reduce the principal, the interest, and the payments, there are

some common grounds. Considering that the average sum of student debt is $30,000, the

minimum announced forgiveness of $10,000 only covers one-third of the expenditures, which

means students need other tactics to reduce their debt. According to University of the People
 4

(How to Avoid Student Loan Debt | University of the People), there are 44.2 million individuals

in the U.S. with student loans, 37.5% of them are under 30 years old, while the rest are students

older than 30, the average monthly payment is $351; however, Medicine and Health Sciences

have the highest student debts at $161,772, followed by Law schools at $140,616. The cost

related to medical schools and the rise of student debts to incredible amounts of money for the

most prestigious universities, which is one reason why there is a decline in the number of

graduates from medical school that choose to pursue a career in family and general medicine.

The logical pick is a specialization with high earnings. Over one-quarter of graduates from

medical schools owing over $200,000, and nearly one-tenth with a debt higher than $250,000,

most students might exceed federal borrowing caps, which can be extended with the differences

between non-standardization of non-tuition costs, which can go from $16,000 to $50,000 in

schools in the same city or region (Greysen et al.). During the last decades, students of lower

socioeconomic status (SES) decreased their participation in medical schools. In 1971, over one-

quarter of the students were from families in the lowest 40% of the national income; in 1987, the

segment was reduced to 15%, and in 2004, it dropped to 10% (Greysen et al.). Frustrated by debt

levels, underrepresented minorities and lower-SES students cannot access the workforce because

grants and loans often benefit higher-SES students (Greysen et al.).

According to (Elliot et al.), higher education can be considered a commodity that can be

purchased by individual students, who would receive different rewards, according to the

purchased education. This commodification of higher education results from the increment of the

cost of attending college, while policymakers tried to address this issue by increasing the access

to student loans and raising the amount of allowed debt (Elliot et al.) A study from 2011 affirmed

that "$10,000 in student debt represents less than 1% of the present value of the average college
 5

graduate's potential lifetime earnings and that taking out student loans to finance college does

little harm overall" (Elliot et al.). One of the outcomes of having outstanding student debt is the

reduction of assets in the household income; however, the amount of the debt has no direct

relationship with the loss of assets. Besides, households with students having outstanding student

loans have less amount of assets than households with a student with outstanding debt.

During the last decades, universities turned their financial aid system, which primarily

comprised a need-based system, into a structure where the preferred method of aid was student

loans (Chen and Wiederspan). (Chen and Wiederspan) affirmed that between the school years of

1995-96 and 2007-8, in public four-year institutions, the percentage of students taking student

Figure 1 Growth of debt for the last decade (What Should the U.S. Do About Rising
Student Loan Debt?)
 6

loans increased from 37.8% to 46.2%, while private non-profit institutions showed an increment

in the borrowing from 48.5% to 58.9%. In 2011, with a national total outstanding student loan

debt estimated close to over one trillion dollars, two-thirds of students graduating from college

had an average debt of $26,600, which is up 5% from the year before (Chen and Wiederspan).

The result was that more than forty-three million U.S. borrowers have almost $1.6 trillion in

federal student loans while adding private loans, the amount reaches $1.7 trillion, which is higher

than auto loans and credit card debits (What Should the U.S. Do About Rising Student Loan

Debt?). However, home mortgage debt is higher, at about $10 trillion.

One of the causes of the growth of student loans is the increased number of individuals

attending college. While during the last decades of the last century, most high schoolers did not

enroll at colleges or universities, and less than half borrowed money, in recent years, about two-

thirds of high schoolers have enrolled, and most of them have taken out student loans, which

have increased 26% their cost in the last decade (What Should the U.S. Do About Rising Student

Loan Debt?). According to the article (What Should the U.S. Do About Rising Student Loan

Debt?), experts and policymakers consider that student loans are hampering the possibility of

younger graduates reaching their financial goals, and at the same time, incrementing racial

inequality. This situation was caused by the soaring tuition costs and the recession of 2008,

aggravated by the actual pandemic, which has affected mainly the millennial and subsequent

generations, influencing their ability to pay for their loans (What Should the U.S. Do About

Rising Student Loan Debt?). Another characteristic of student loans is that they are more difficult

to discharge in bankruptcy than other forms of debts, such as credit cards, due to the difficulty of

proving "undue hardship" (What Should the U.S. Do About Rising Student Loan Debt?).

University administrators suggested that universities lost more students because of credit card
 7

debts than academic failure (Robb et al.). Because of the debt burden, graduates who would have

considered taking job positions in less lucrative industries must compete for a more lucrative job

placement, which reduces their options (Robb et al.).

It is necessary to consider that while student loans are equalizers for class inequalities,

parental income, wealth, and education, at the same time, they will consume later income that

could be used in investments or savings, and besides a part of students loans do not lead to

completing a degree or to degrees leading to highly compensated jobs (Jackson and Reynolds).

Figure Race and loans (Jackson and Reynolds)

Racial differences in access among college aspirants and completion among those who

matriculate are strongly influenced by the financial aid provided (Jackson and Reynolds). It is
 8

important to remark that the use of loans makes sense because of the potential benefits of

persisting college and the gains associated with earning a degree. However, some risks come

with all loans. Regardless of whether the student completed their education, high loan balances

and debt burden are one of the risks associated with student debt. Besides, a debt burden that is

over eight percent of the ratio of monthly student loan payments to current gross monthly income

is considered high and at significant risk of defaulting (Jackson and Reynolds)

Even before adding the pandemic into the mix, the panorama was and is dark, primarily

because excessive debt burdens generated problems for students, graduates, and the national

economy by hindering the future growth of the economy and individual's investment (Jackson

and Reynolds). However, black students face a much higher risk of defaulting degree or not

degree, with the added characteristic that they also are the higher debtors in every category

(Jackson and Reynolds). Another statistic shows that 58% of the enrolled students complete their

degree in six years (Why Do Students Drop Out Of College: What Can We Do About It?), which

means that 42% of the students take longer to complete their degrees drop college altogether.

With the actual cost of higher education, going to college causes financial stress, which leads

students to consider dropping school as the only way of saving money (Why Do Students Drop

Out Of College: What Can We Do About It?).

What can be done to decrease the dropout numbers? While there is a lot of advice and

tips to reduce student debt for the students, the solution is to create savings for school tuition,

refinancing the debt, make extra payments, or follow the standard repayment plan; there are no

proposals, advice, or plans that involve the participation of colleges and universities. President

Biden's plan to turn public college into tuition-free higher education institutions is a good

starting point. However, there are other measures that colleges can implement, such as reducing
 9

their tuition and non-tuition costs, offering more scholarships, having online courses that can

reduce the cost of the course both for college and the student and a support system that includes

both financial, academic, and emotional support.

Despite the announced Family Plan, there are things that students can do even before

enrolling in college, such as comparing the cost of the degree in different institutions and finding

the most affordable, using in-state tuitions, transferring credits from community college,

attending online colleges, or "no-loan" colleges (How to Graduate Debt-Free). Another strategy

to study without the financial stress of attending college is to work for a company with an

employer tuition reimbursement policy. This type of financial aid can pay for a part of the total

tuition of employees who intend to study a subject relevant to the company. Some of the

requirements of those programs involve requesting inclusion in the program even before being

accepted in college and a minimum time working for the company (How to Graduate Debt-

Free).
 10

Bibliography

Chen, Rong, and Mark Wiederspan. "Understanding the Determinants of Debt Burden among

College Graduates." The Journal of higher education, vol. 85, no. 4, July 2014, pp. 565–

598.

Elliot, William, et al. Does Outstanding' ' Student Debt Reduce Asset Accumulation?

Working Paper, No. 13-32, Washington University in Saint Louis, 2013, p. 18.

Greysen, S. Ryan, et al. "A history of medical student debt: observations and implications for the

future of medical education." Academic Medicine, vol. 86, no. 7, July 2011, pp. 840–845.

How to Avoid Student Loan Debt | University of the People.

https://www.uopeople.edu/blog/how-to-avoid-student-loan-debt/. Accessed 3 May 2021.

How to Graduate Debt-Free. https://www.bestcolleges.com/financial-aid/debt-free-degree/.

Accessed 3 May 2021.

Ingraham, Christopher. "Student loan debt: Here are 7 ways the $1.6 trillion toll affects the U.S.

economy - ." The Washington Post, 25 June 2019.

Jackson, Brandon A., and John R. Reynolds. "The price of opportunity: race, student loan debt,

and college achievement." Sociological inquiry, vol. 83, no. 3, Aug. 2013, pp. 335–368.

Lane, Ryan, et al. "Joe Biden's Student Loan Plan: What's Happening Now - ." NerdWallet, 29

Apr. 2021, https://www.nerdwallet.com/article/loans/student-loans/joe-biden-student-

loans.

Robb, Cliff A., et al. "College student persistence to degree: the burden of debt." Journal of

College Student Retention: Research, Theory & Practice, vol. 13, no. 4, Feb. 2012, pp.

431–456.

Weidner, Justin. Does Student Debt Reduce Earnings? Nov. 2016.

What Should the U.S. Do About Rising Student Loan Debt?

https://www.cfr.org/backgrounder/rising-student-debt-harming-us-economy. Accessed 2

May 2021.

Why Do Students Drop Out Of College: What Can We Do About It?

https://www.uopeople.edu/blog/prevent-students-from-dropping-out-of-college/.

Accessed 3 May 2021.