With student debt at $1.6 trillion, who is burdened the most and what is being done about it?
- Student debt is the second largest form of household debt after mortgages, amounting to $1.63 trillion last year.
- Student debt is a growing concern for many, but when it comes to legislation it has proven to be a divisive issue.
The student loan crisis in America is a force to be reckoned with. It is the second largest form of household debt after mortgages, amounting to $1.63 trillion last year.
88% of students are worried about the current state of the economy and for 34% of them, the biggest fear they have after graduation is their debt, followed by not finding a job, according to a new survey by WalletHub,
While the debt weighs heavily, students do not think that investment into their degrees was a bad idea – in fact, 63% think taking on student debt to fund their education was a good call. The factors they think are failing them have less to do with the price tag of their degrees and more about what they learn from it. 50% think their education is not appropriately focused on helping them understand the twists and turns of personal finance.
The recent economic turbulence has also impacted how students interact with credit: 54% more students report that they don’t have a credit card account this year compared to 2022.
Lay of the land: Student debt across America
The student debt crisis does not impact every city evenly. Cities like Walterboro (South Carolina), Spring Valley (New York), and Brookhaven (New York) are some of the most overleveraged, while inflation has hit hardest in cities like Miami, Detroit, and Phoenix.
Getting a Job and getting into debt: The double bind of college degrees
Those with college degrees do earn higher than those without one. In 2021, those with a full-time job and a bachelor’s degree earned a median usual weekly earnings of $1,334 while those without any degrees earned $899 or lower, according to the Bureau of Labor Statistics.
But getting a degree sets people up for student debt. In the academic year of 2020-2021, data shows that 51% of students who graduated from a four-year degree had a student loan average of more than $21,000 per student. Oddly, the figure for those graduating from a private institution was only a bit higher, with 53% graduating with an average debt of $22,000.
Biden to the rescue?
In August last year, Biden announced plans to cancel up to $10,000 in student debt per person and $20,000 for recipients of a Pell Grant who earn less than $125,000 a year. The announcement was the realization of a campaign promise but has been met with fierce resistance by Republicans who have been trying to block the debt relief program in the Congress as well as the Supreme Court. While Republicans question why those who come from low income families should pay for those who were able to go to college, Democrats are raising questions about actions of the Trump administration:
"We didn't hear any concern about equity when the $1.9 trillion Trump tax cut passed [and] 80 percent went to the top 1 percent and corporations,'' said Rep. Bobby Scott of Virginia, the ranking Democrat on the committee.
Meanwhile Biden’s promise to cut back on student debt is promised as a remedy to reducing the racial wealth gap in America. And like geographies, student debt does not affect every student the same way. For example, Black and African American college graduates owe an average of $25,000 more than White college graduates.
Like the student debt relief program, last year Biden also announced an overhaul of the Public Service Loan Forgiveness program (PSLF), which was designed to forgive parts of public sector employees’ debt. Before the overhaul, data shows that 99% of all applications were denied.
Following the overhaul, partnerships between traditional finance players and fintech followed. For example, Fidelity Investments partnered with Summer, a company that offers digital solutions to employers which help student loan forgiveness applications. It is likely that if the student loan forgiveness program is approved, more partnerships like this one will pop up and fintechs will work to capitalize on the approval.