As the impact of the 2008 recession dwindles into America’s amnesiac consciousness, the nation’s economy has seen the rise of another subtle but looming economic catastrophe. Student loan debt, already at a record high of $671 billion in 2008, rose to $1.52 trillion last year according to the Federal Reserve – a figure higher than the current standing $1.3 trillion GDP of Spain. This exorbitant deficit is the unintended consequence of a long-winded historical effort to increase the accessibility of higher education to the general public, though to limited avail. As the price of higher education continues to grow and universities across the nation adjust their tuitions to maintain inflationary standards, the most vulnerable Americans, grappling with high economic stratification and stagnant wages, are crippled by this trillion dollar industry of compounding interest and extravagant payment obligations. This system fails the very demographic it initially aspired to assist and has morphed into a form of predatory lending that keeps marginalized communities stranded in debt obligations and trapped in their economic strata.
The process of federal loan distribution for the financing of higher education emerged in 1958 with the National Defense Education Act, which allowed students to borrow up to $5,000 from their universities to afford their education. This method was further developed in 1965 with the passage of President Lyndon B. Johnson’s Higher Education Act (HEA), which authorized an increase to the federal funding of universities, created more scholarships and provided low-interest student loans to those seeking advanced degrees without the financial means to do so. These loan based schemes now encompass a wider variety of federally funded loans, including both independent and cosigned loans, to assist a student’s cost of college attendance. The demand for higher education in attracting job prospects and the surging cost of tuition deemed federal loans incomplete in its influence; thus, in 1972, they were supplemented by the creation of Sallie Mae, a secondary market for student loans distributed by various private lenders. The student loan crisis encompasses a hybrid of both publicly and privately withdrawn loans, all of which accrue interest at individually established rates.
Student loans did not emerge for nefarious reasons. They were amended to be a weapon against economic shortcomings, aspiring to assist the poor and the middle class in accessing university education to guide their social mobility. Once people went through the system, it was assumed they would be able to pay off the debt with relative ease due to the return on their investment in higher education. This assumption, however, is complicated by the reality that from a very early age, an individual’s socioeconomic standing determines their financial means to invest in the things that will build their social capital — which is necessary to gain admission to and succeed in American universities. It is further undermined by the racial and economic disadvantages that inhibit many from successfully completing their schooling. Instead of universities being the equalizer of the American Dream, the children of wealthy individuals disproportionately enjoy various comparative advantages contributing to their success, ranging from their access to better school districts, tutors and extravagant extracurricular activities, to a lack of financial obligations. These inequalities are exacerbated through the process of an inequitable education, that bars many from even entering college.
Among the students that do complete higher education, only 30 percent leave the system debt free – this means 7 out of 10 students graduate from university with a substantial amount of student debt averaging $37,172. The annual cost of college attendance, ranging from $10,230 in public universities to $48,510 in private in 2019, is even more staggering when observed along trends in wages. It was comprehensively observed by Drew Desilver, a senior writer at the Pew Research Center, that “usual weekly wages have risen 3 percent (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3 percent among the lowest quarter [since 2000]. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7 percent, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).” As the majority of wage growth significantly benefits the highest percentile of the income bracket, wealth inequality is on a sharp rise, disfavoring low income individuals with loans to service – many of whom have accumulated the highest number of student loans due to financial necessity.
The high cost of college also means dropouts will yield significant economic losses. In instances of dropouts, students become overwhelmed with debt while simultaneously facing the cost of reduced social capital due to wasted time. This questionable rate of return is existent for many successful graduates as well. The rising threat of underemployment looms in the career prospects of every individual, who, fresh out of university, will be willing to take on even low paying jobs to avoid unemployment. According to the Federal Reserve’s Labor Market for Recent College Graduates report, 43.7 percent of recent graduates between the ages of 22 and 27 “are underemployed, which means they’re working in jobs that don’t require their degrees” and “34.4 percent of all college graduates are underemployed.” This percentage translates to $462.3 billion in student loans taken out by students whose costly education had virtually zero impact in their employment outcomes. This has been a trend since the Great Recession. Political economist Gary Lapon stresses how “companies across the United States have been able to take advantage of the excess talent in the labor market and push overall wages down, while boosting the experience required for these roles.” What this means is that the value of a college degree is both increasing and being diluted; it has become a qualifying factor in the job recruitment process regardless of whether or not the acquired education contributes to the skill sets required for that job in the first place.
It is evident that the transition into a loan based model of investment in human capital has transferred the burden of social investment from the government to individuals themselves. This neoliberal schema, premised under the notion that welfare initiatives result in inefficient outcomes, boasts accountability and the power of market generated solutions. However, when this method is supplemented by a reduction in the federal spending of higher education, there is a disregard for both the predatory influence a student debt crisis has on the economy and the more functional models of socially funded universities in nations more highly ranked in terms of upward mobility than the United States, such as Norway. Despite these critiques of inefficiency and debates surrounding the morality of welfare subsidies, it is possible to undergo an institutional shift to a publicly financed universal education scheme without it straying from the framework of a capitalistic model. This model solely requires governmental reprioritization. It is not that the United States government cannot afford a program this large in scale – it has simply never considered it in its budget considerations, establishing a loan-based precedent that is exacerbating today’s student debt crisis.
First and foremost, in order to maximize higher education participation for low income individuals, it is critical to improve the standard of education in the years leading to university. This ought to be done through a more equitable consistency in student investment across the nation’s schools, increased integration, greater opportunities for vocational training and reforms in other sectors that influence a child’s ability to attend school. There should therefore be an exerted attempt to equalize the playing field through increased financial intervention in these especially impoverished districts.
For individuals who complete primary, secondary and tertiary education but do not go on to pursue a university education, vocational education and apprenticeships must remain a potential avenue for social mobility. The emphasis on formal schooling has so significantly devalued the power of vocational education that it is essentially void today in sectors contributing to noticeable mobility. A striking example is in the field of law with the case of President Abraham Lincoln, who became a professional lawyer without the experience of a formal education and solely through apprenticeships. Today, only a select number of states allow apprentices to become barred attorneys without a law school accreditation. Students are instead expected to pursue an advanced law degree after their undergraduate degree, which averages in cost $43,020 per year. Greg Fernstein of the Brookings Institute emphasizes this very reality in other industries as well, for “college associations have fought to maintain full-time academic degrees as the first step toward aspirational careers — whether in law, medicine or other professional occupations — for over a century, successfully relegating apprenticeships to less prestigious careers.” If social mobility is the goal, the possibilities of vocational training must once again be expanded to meet the potential of every worker.
Furthermore, there must be an initiative to make public colleges free. In the same way that we invest in our military to develop weapons of mass destruction to keep us safe, we must see it in our priorities to build our citizens’ human capital through a formal investment in higher education. The notion of governmental funding is not as radical as it may appear. Gary Lapon stresses that “to make public higher education free for all in 2009-10 — covering all tuition, fees, room and board for undergraduates at all public two- and four-year colleges — would have cost $127 billion.” Calculating this $127 billion into the total expenditures for the 2010 fiscal year would come out to only 3.6 percent of the total expenditure for the fiscal year, granting free education to all within the public university system without considerable impact. This number is old, but it is still feasible. According to the Department of Education, the funding of public education would have required $79 billion in 2018, a number consistent with that in 2010 — although this would not consider room and board. So we need to get our priorities straight. The idea of education as a social investment has never been significant in America’s neoliberal culture and this ideological gap has always been the biggest hindrance to change. But funding free universal education is compatible with a variety of capitalism that prioritizes the social welfare of its students, and treats their education as a social investment. This approach would significantly reduce the weight of the student loan crisis by eliminating one of its main sources and encourage more students to go on to higher education, without needing to consider the burden of student loan debt. If the rest of the developed world can do it, so can we.