By Bahar Akman Imboden
There is increased evidence that student loans perpetuate, if not aggravate, existing inequalities.[i] Studies show that debt is disproportionately burdening low- and middle-income households,[ii] blacks,[iii] Latinos,[iv]and women.[v] Research also indicates that individuals with student debt are more likely than their debt-free counterparts to report financial difficulties.[vi] While current literature on the effect of student loans on degree attainment has yielded mixed research findings,[vii] the suggestion that a negative impact is possible is, in itself, troubling.
In truth, we have increasingly relied on student and parent loans to finance higher education because it has proven to be a politically viable bipartisan solution to increasing access of diverse populations to higher education. However, other than access, can we vouch with confidence that loans are doing more good than harm for the majority of students who use them?
The recent Brookings study projects that 40 percent of borrowers are at risk of defaulting on their student loans by 2023.[viii] Even if on average a student is better off with loans, are we ready to leave about half of the borrowers struggling to repay even a small loan of $5,000 to 10,000?
To make matters worse, the loan system has created perverse incentives for many actors operating in the higher education space:
➢ There are no incentives for states to increase their appropriations for higher education or for colleges to decrease their tuitions. Both actors are confident that students and their parents will have easy access to loans to cover increases.[ix] The relationship between tuition increases and access to loans has become a chicken and an egg problem.
➢ Several predatory for-profit schools have based their business models on the availability of these loans with little commitment to providing quality education. This resulted in considerable amount of debt for many who hold worthless degrees (or no degree) and are unable to repay. [x]
➢ Students have bought into this culture of borrowing for college in pursuit of the American Dream, which have desensitized them to price and mislead them to think that high tuitions and expensive amenities mean quality education and prestige.[xi]
➢ Loan servicers are given no incentives to properly advise borrowers about repayment plan options as they profit more from leaving them in expensive plans.[xii]
➢ Fraudulent debt relief companies have preyed on struggling borrowers with promises of reduced or forgiven debt.[xiii]
➢ Private lenders have thrived within this culture of borrowing: unable to fully cover increasing tuitions with federal loans, students have increasingly become dependent on high interest private loans to complete their degrees.[xiv]
At Hildreth Institute, we believe that student loans are not the right financial aid tool. Our heavy dependence on loans to finance college has resulted in many unintended but detrimental results, which is threatening the financial stability of our youth, their families, our colleges, and the economy.
Our goal is #ZeroDebt!
We demand #ZeroDebt for current debtors and for future college goers.
We have identified a set of actionable policies that will help lower the current and future debt. We seek to enlist the support and collaboration of four main actors: higher education institutions, States and the federal government, employers, and nonprofit organizations so that we can gradually wean ourselves from loans.