Both Tim Steinbach, a business major, and Kaylynn Hoffman, a special education major, are third year students at SVSU who share a similar problem: they have student debt.
But this is not where their similarities end.
Both Steinbach and Hoffman worked around 40 hours a week over the summer. They have parents who help them financially. They currently have jobs now and are recipients of a scholarship that goes towards their tuition payment. Steinbach and Hoffman both live on campus, feeling that it is the easiest option for their involvements and on-campus employment. The question remains, however, as to why they are still in debt despite their hard work and family help at paying it off.
Average student loan debt has been on the rise for decades. America’s total student loan debt is now $1.2 trillion. That’s double the United States military budget and closing in on the GDP of South Korea. The debt isn’t really indicative of an investment, either — a staggering 41 percent of students are not counted as graduating.
No one likes these numbers. But for all the media hours spent worrying about the crisis, a solution is still far from being reached. Not only is there disagreement in how to proceed, there is conflict as to what exactly is causing student debt to rise so rapidly.
Steinbach and Hoffman are not the only ones who have to deal with taking out loans, and they are not the only ones who realize that they eventually have to pay it off. Many SVSU students have the burden of student loans despite their best efforts to pay for the expenses of college.
Hoffman is around $10,000 in debt this year.
“School is expensive, and I don’t make enough even to cover all of the costs working 40 hours a whole summer,” Hoffman said.
Hoffman’s parents both have jobs and make too much to allow her financial aid, and, therefore, loans are her only option if she wants to continue her education.
“It’s really upsetting, because I know I’m going to graduate and I’m going to owe lots of money, and it feels like money rules our lives,” Hoffman said.
Many students are feeling the struggle of living in a nation where even working full-time every summer is not enough to pay for the school year, let alone four or five years of it.
“I get that the university has be maintained, and they have to pay teachers and for the places we live, but it’s so expensive, and I don’t understand why,” Hoffman said.
Some are quick to blame students for making unwise economic decisions. Others blame schools for raising tuition rates. The truth is muddier.
Emblematic of the crisis’ complexity are two related paradoxes: student loan default is declining while student loan debt is rising, and high tuition is not linked to a high default rate.
Those facts seem counterintuitive. One might expect that students who attend expensive institutions have trouble paying back their loans. After all, these students are burdened with the highest tuition and, usually, more debt than attendees of less expensive colleges. This is not the case.
In fact, students with the least debt are the most likely to default. Students with $10,000 or less in debt are the most likely to default on their loans. Often, these are attendees of for-profit colleges who never completed their degree. Many attendees of community colleges also have trouble paying their loans. With no or inferior degrees, these students regularly default.
Students faced with high tuition actually default less. Degrees from selective schools are very expensive, and many students do go into debt to earn them. However, these degrees tend to pay for themselves far sooner than those of less prestigious schools. This is why colleges with high student debt very often also have a low student default rate.
Graduate students complicate the statistics further. They, too, are charged exorbitant tuition. But once again, their degrees pay off —those who attain master’s degrees default on their loans even less than students at prestigious, four-year universities. As a result, graduate students drive up the average student loan debt, but drive down the student loan default rate.
To be clear, rising overall tuition costs do appear to be a factor in rising student loan debt. But understanding the cause of tuition’s rise has proven extremely controversial.
In 1987, Secretary of Education William Bennett popularized the notion that climbing tuition is the fault of financial aid. A number of economists have fleshed out Bennett’s contentious claim and the “Bennett Hypothesis” has endured in popular politics. Its basic argument is hard to deny: supply will eventually catch up to demand, but prices will be raised in the meantime. Thus, while financial aid has put more students in college than ever before, tuition has been soaring.
If the Bennett Hypothesis were true, the best course of action would be to cut back on financial aid. Thankfully, it isn’t. Numerous studies have shown that, at best, tuition and financial aid correlate — one does not cause the other. Curtailing financial aid will not end the student loan debt crisis. Still, the intuitive nature of the Bennett Hypothesis continues to appeal to politicians, particularly those who are already opposed to funding higher education.
Public institutions have faced severe underfunding at the state level, especially since the recession. Schools have had to make up those funds somewhere, and many have opted to raise tuition. This does appear to have increased student debt. But underfunded schools have also elected to take shortcuts, like cutting faculty. Since degree quality is the only thing saving many indebted students from default, this is a dangerous course. The student loan debt crisis must be understood in the context of the greater higher education crisis.
While many schools are doing their best to provide the best the highest quality education they can given the circumstances, others have been exacerbating the situation.
For-profit schools have outrageous student loan default rates — often two or three times those of their public, non-profit competitors. They also have higher tuition rates than public colleges. Given that high tuition is not linked to high default rates, there is no excuse for this. The recent proliferation of for-profit schools is another factor in the student loan debt crisis.
Companies that offer student loans have also been singled out for blame.
Upwards of 69 percent of graduates are in debt and around 14 percent of graduates are never able to pay off their debt. Thanks to decades of degrading rights, bankruptcy laws cannot be applied to student loan debt. With millions of students facing the full economic consequences of default, it is very important that student loan providers play fair. They do not. Without the threat of bankruptcy, loan providers do not have proper incentive to make loans repayable.
The federal government contracts its loans out to private corporations, and students are not permitted to switch providers. These providers are barely overseen or regulated, despite doing business directly with the federal government. This is neither the free market at work nor sensible investment.
Student loans are a necessary component of our higher education system. Deferring payment allows less privileged students to earn an education without paying tuition upfront. Without student loans, higher education is accessible only to very few.
But the system hasn’t been working smoothly. For-profit schools and loan providers are more interested in quick paychecks than education. It should come as no surprise that allowing them to prey, unchecked, on students while defunding public universities has led to steadily rising tuition and student loan debt.
Ryan Schroeder is a fourth-year student who is also in debt. He’s not as worried personally about it because he believes that it is simply a way of life now.
“The way I feel about student debt is that, with SVSU, it’s not such a huge deal,” he said. “I do sympathize with students going to (the University of Michigan) or (Michigan State University) or these other big schools where they will be thousands of dollars in debt. People will have massive weights on their shoulders for so long.”
And the issue continues getting worse each year.
“Affordable education is a necessity right now,” Schroeder said. “If we’re looking to vote for any elected office, we should be looking at somebody who puts education as a priority.”
Twenty years ago, an individual could work all summer and pay off higher education expenses without an issue. Degrees were not necessary to have a job that could sustain an individual, or even a family, but today, people are told they will need a degree in order to have any good job. But sometimes, the debt gets in the way of what the individual truly wants to do with their life.
“My ultimate goal is a be a pastor, so I can’t really have debt and be a pastor, so I have to put being a pastor on hold until my debt is paid off,” Steinbach said.
Steinbach not only had to pay for classes, but also had to pay for books, which are also very expensive. He believes that the three hundred or more dollars he had to pay for books would be better used towards tuition, and wished that books weren’t as expensive.
“I’m sure there is a better way to do it, but I just don’t know how,” Steinbach said. “It just feels like a way of life now.”
