A Systematic Catastrophe: 45 Million Students In The US Owe The Government $1.6tn

• Out of the 45 million students with outstanding student debt, around 33% of them belong to the 25 to 34-year-old age group.
• According to experts, federal and state funding cuts are the primary reason why student debt has inflated to such an extreme point.
• Experts are recommending students should find the right fit between the university of choice, the program that is being offered, and their affordability.

Thousands of college students in the US struggle to afford college tuition fees every year, and student loans offer a feasible solution. Students are expected to start paying off their outstanding debt after the end of their academic program, which is supposedly easy to do considering they hold a college degree and hence find themselves in a position to secure high-paying jobs.

At least, that’s the theory. In reality, many past students are now struggling to pay off their student debt. For example, many students that ended up getting expelled from their college find themselves without a college degree and thousands of dollars in debt. And that’s just one case scenario. There are many other factors that have contributed to a student loan crisis in the country.

Out of the 45 million students with outstanding student debt, around 33% of them belong to the 25 to 34-year-old age group. This cohort has also experienced one of the worst economic times in history, including the post-financial crisis recession that resulted in wage stagnation and increasing college tuition fees.

Hence, the promise of a brighter financial future after attaining a college degree never materialized for this generation and, combined with a huge student loan, left them in financial turmoil. This is exactly why providing relief to those experiencing the worst student debt problems has become a key focus in the 2020 US presidential elections.

Struggling To Afford

It has become common among millennials to opt for multiple jobs to service student debt obligations in addition to meeting general expenses. Those that failed to make repayments on time have either signed up with public refinancing programs to help with repayments, resulting in a higher interest rate charges, or declared bankruptcy.

Large outstanding student debt has much wider ramifications on the economy, including a lower number of people opting to own a home or starting up a new business, and reduced consumer spending.

The President of the United State, Donald J. Trump, has called the current student debt crisis in the US as outrageous since it accounts for 8% of the total national income of the country. Although tackling the student debt issue was on Trump’s agenda when he won the presidency in 2016, so far measures have not effectively dealt with the problem at all.

According to experts, federal and state funding cuts are the primary reason why student debt has inflated to such an extreme point. Federal funding has barely increased since 2007, and the cuts enacted at both federal and state-level during times of recession have not been reversed during times of growth. Additionally, tuition fees have also increased substantially over the past few decades.

In many other developed nations, tuition costs for higher education are often state-funded or the government places a cap on the total fee a university can charge. For example, in the UK, universities cannot charge more than £9,250 per year for their undergraduate programs, at least to students belonging to the UK or the EU.

In comparison, US universities charge anywhere between $10,000-$50,000, with some charging even higher. Although parents do support their children to pay for college, according to a study conducted by HSBC back in 2018, the average student lacked $82,100 in funding to attain a college degree.

An Old Model

The current model of student debt relies on graduates earning a high wage after graduation, but with increasing tuition costs and stagnated wages, the model is now tilted. A college degree no longer delivers a proportionately higher return compared to the investment it requires.

Now, experts are recommending students should find the right fit between the university of choice, the program that is being offered, and their affordability. According to them, a brief analysis of the expected regular income they hope to generate after graduation should guide their student loan decisions.

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