The Supreme Court decided against allowing President Biden’s student debt forgiveness program to proceed. While the program is not a perfect strategy to end the student loan debt crisis, the program would have provided some relief to students, many of whom are poor and disproportionately African American females. The program did nothing to address the predatory profit-seeking student loan program. Student loans today are far different from the student loans I secured when I was going to college.
I’m among the baby boomers who fully paid off my student loan debt. The terms of my undergraduate student loan debt mandated that it would be paid off in ten years and it was. It was straight principal and interest, and the interest rate was low compared to the market rate. It was exactly like a car loan. My consolidated student loan at the graduate level for both my master’s and doctorate were also straight principal and interest that started at 4.5% and was reduced to 3.25% after 24 consecutive payments. It much took longer than ten years to pay off that $70,000, but I did it without missing a payment and by paying more than the minimum payment. Well into my repayment, I learned that working for a non-profit for at least 10 years qualified some borrowers for loan debt forgiveness and so I applied, only to learn that my loans weren’t the type of government loans eligible for the forgiveness program. To this day, I don’t understand it, and no one could quite explain it, but I shrugged my shoulders and continued to pay my off my loans until they were fully paid. I’m thankful for the extremely low interest rate, consistent employment, a decent salary, and a modest lifestyle that allowed me to pay off my student loan debt.
My eldest daughter attended an expensive private university and incurred a substantial amount of student debt. It was her dream school that offered her a great education, social connections, and leadership skills. That education served her well. Thankfully, she secured a six-figure income and quickly paid off her loan. My son secured a full-ride athletic scholarship and graduated in four years completely debt free. This made it possible for him to volunteer for the Peace Corps and return to secure a high paying career. But things were different for my middle daughter. She worked to pay her tuition and fees at a state university, and I paid out of pocket for her room and board. However, due to her illness, at one point she took out a $6000 student loan. I was shocked at the 8% interest rate but was certain she could manage a mere $6000 once she returned to work, thinking it was like a car loan. However, that wasn’t the case at all.
If you’ve read my blog, you know that my middle daughter struggles with bipolar disorder and so she seldom has a straight line between her objective and her goal line. She graduated in five years despite her mental health challenges that included occasional hospitalizations. Eventually, her mental health challenges interfered with her jobs post college. Regrettably, I wasn’t paying attention to her student loan. I later learned that her loan behaved more like a credit card than my straightforward principal and interest payment student loan. Despite her consistent minimum payments, the balance grew. When she took a necessary deferral due to unemployment because of her illness, the interest continued to accrue. Eventually circumstances forced me to pay attention to her financial situation and that was when I discovered that the $6000 student loan had ballooned to a $26,000 debt. I was shocked.!
I was also furious, not at her, but at the new student lending laws that allow banks and the government itself to saddle students with predatory loans to fund their education. The student loans today are like credit cards where the minimum payment doesn’t cover the full principal and interest to pay down the loan. My daughter had been making monthly payments, only for the loan to grow bigger and bigger every month. And because of her situation, she was unable to pay more than that. These loans are worse than credit card debt because our government doesn’t allow for bankruptcy relief of student loan debt.
I decided to take over her loan and pay it off. What I discovered is that even when I began to make payments considerably higher than the required minimum, the principal wasn’t moving much but next statement due date would move further out. The monthly interest that was accruing remained high despite the extra payments. What I learned from a phone call to the company was that I had to specifically specify in writing that any amount over the minimum payment must be applied to the principal. Talk about predatory lending! I was glad to finally get that debt paid.
But that experience made me realize that the problem with the student loan crisis for many students today is not that they don’t want to pay their student loans, but that they are locked into a system that entraps them into a never-ending cycle of credit card-like debt under the guise of a student loan. While 8% is less than a credit card interest rate, with the increasingly higher loan principals needed to fund higher education these days, the payments can be debilitating for a person just out of college. So, because of the nature of the student loans today, I am in favor of Biden’s one-time forgiveness of $10,000 or $20,000 in loan debt to make up for the how students are being ripped off. It’s regrettable that the Supreme Court decided against it. As previously mentioned, the largest proportion of debtors are black women and students from poor families. This is yet another blow to people in the most vulnerable positions among us.
But more important than forgiving some student debt, I believe our government should return to low simple interest and principal repayment plans and stop exploiting students with debt that behaves like a credit card. As a country, it is in our best collective interest to encourage education and not to exploit our youth by saddling them with predatory loans. Deferrals for medical reasons or unemployment should halt the interest accrual. In addition, government Pell grants for low-income students should be much higher. State and federal government scholarships for low- and middle-income high achieving students should be substantial enough to fund public college or trade schools. No undergraduate student should graduate from college owing more than it costs to purchase a car or to make a down payment on a house. In the end, this hurts our economy while curtailing the social and financial progress of young people.
Getting an education beyond high school is necessary for most people to achieve financial success, whether that be a trade or college. It remains a wise investment that will pay off in higher wages and a greater earning potential over a lifetime. However, I also believe that under the current government policies that allows for predatory student loans, becoming saddled with unnecessary student loan debt is to be avoided. There are steps that can be taken to avoid student loan debt.
First, is to be an exemplary intellect or an exemplary athlete who earns a full scholarship through the school, community scholarships, and corporate and private scholarships. I once had a very smart student from Chicago who applied for every scholarship she could find, even those that she didn’t think applied to her. She had more money to fund her entire four years at our expensive private college than she needed. To motivate my children, I remember telling them that their grades and extra-curricular activities equated to dollars when they applied to college. While each of them received various scholarships, only one received a full ride.
Second is about choosing the right school. The most economical choice absent a full scholarship or trust fund is a local community college. A student can fund two years of community college for university transfer or education for a trade on a part-time job. In some places, students can take community college courses while still in high school for free. I’ve had several students enter my university as juniors right after high school graduation. A few entered as sophomores because of AP courses for which they earned college credit. In addition, community scholarships and Pell grants are available to community college applicants. Community colleges also offer remedial courses that many students from low performing K-12 schools need to prepare them for college coursework. This strategy would help eliminate the exceptionally high university dropout rate among under-prepared students. Tragically, many of the dropouts leave the university saddled with student debt and no degree to show for it.
For those seeking a four-year degree, doing well in those first few years of community college could mean a much lower student load burden (if any) at a more prestigious four-year college as a transfer student. Students and parents forget that the degree on the diploma will show the school from which the student graduated, not their path to get there.
Choosing the right four-year college is important too. State colleges tend to be less expensive and concentrate on supplying an educated workforce for the state. I believe that people going into careers like k-12 teaching, business, social work, and public service work are best served by the less expensive state colleges. People interested in academic research, law, medicine, and teaching at the University level are best served by a slightly more expensive state research institution. However, there are private research one institutions as well that are even more expensive. And those interested in high level leadership roles as professionals generally covet competitive spots at the most expensive and highly prestigious private universities such as Harvard, Princeton, and Yale. Lesser-known private universities do well at pre-professional preparation, offering small classes and personalized attention. They also have a leadership component attached to their mission and are feeders into the more prestigious public and private graduate schools. Students will pay a premium to attend these four-year private colleges and universities.
And finally, funding college should be considered a family affair with the goal of avoiding student debt. Of course, wealthy parents often pay for their children’s education outright, selecting the most prestigious private colleges and universities. Their children are able to graduate debt free while having obtained an education, social connections, and leadership skills. For the majority of Americans, it will take parents, grandparents, aunts and uncles as well as the students themselves joining together to pay for college if they want to graduate debt free.
Here’s some advice. Absent generational wealth, people should begin saving for college as well as retirement as soon as that first job. High school students who hold part-time jobs should save for college or trade school, not for cars, fancy vacations, or clothes. These days, investment companies make it easy to set up 529 college saving plans. Make saving automatic to avoid the temptation to spend the money and then watch it grow. With high interest rates today, high yield savings accounts are paying up to 5%, making it a good time to save. You can comparison shop at NerdWallet.com or Bankrate.com to find a high yield savings account.
I’m hopeful that President Biden will find a way to get around the Supreme Court decision and forgive some of the student loan burden on these unwitting students. But I’m even more hopeful that each reader will join me in petitioning President Biden and lawmakers via email or letter to encourage an end to the predatory lending practices that created the debt crisis in the first place.