Student loan debt is costing recent grads much more than just money

The announcement of a $20 million school mental health program was a surprise to key stakeholder groups. (Photo by lightspeedshutter/iStock via Getty Images Plus)

President Joe Biden promised to forgive up to $10,000 in student loan debt during his 2020 campaign. Now, a few months into his presidency, over 415 organizations have urged him to use his executive authority to cancel all federal student loan debt. The Conversation assembled a panel of academics to talk about the effects student loans have on recent graduates.

How much student loan debt is too much?

Kate Padgett-Walsh, associate professor of philosophy at Iowa State University

Student debt is too much when it threatens the physical and mental health of young borrowers. Today’s college graduates now finish school with almost $30,000 in student loan debt, on average, an increase of over 300% from 1970 after adjusting for inflation.

Research shows that the burden of this debt causes poorer mental health, poorer physical health and less overall satisfaction with life.

It also causes borrowers to delay marriage, postpone renting or buying their own homes and put off starting new businesses.

Student debt is also too much when it blocks access to the American dream, the idea that success is possible in the U.S. no matter a person’s background. Students who are the first in their family to attend college and low-income students have a much harder time paying off their student loans, and they end up defaulting more often than other students. Black students, who owe 60% more than their white counterparts, struggle even more to pay back their loans, in part because of persistent racial wealth and income gaps.

The government’s original purpose in lending to students was to help people of modest means get a college education. But today, it is precisely those borrowers who are most harmed by student debt.

Why is debt relief for college graduates an important issue now?

Dalié Jiménez, professor of law at the University of California, Irvine School of Law

Providing broad debt relief for student borrowers is something President Biden’s Department of Education could do today. That move would greatly lessen gender and racial inequality and boost the economy.

As a result of the COVID-19 pandemic, the government paused interest charges and payments for most federal student loans, but this temporary relief is set to expire at the end of September 2021. After that, defaults are likely to return to pre-pandemic levels. Before the pandemic, borrowers were defaulting on federal student loans every 26 seconds, or just over 1.2 million times per year.

The returns to higher education are large, and they benefit society as a whole as well as individual students.

Effectively requiring the least wealthy to take on personal debt to go to college instead of directly investing in higher education was a policy mistake. It has harmed not only the roughly 40% of borrowers who did not finish their degree and now owe money that is difficult to discharge in bankruptcy; this is money that can remain outstanding until the borrower’s death. But it has also harmed society as a whole. Providing broad debt relief would likely give Congress an incentive to focus on finding a way to fund higher education that addresses runaway tuition and does not rely on loans to students in need.

How does student loan debt disproportionately affect students of color?

Raphaël Charron-Chénier, an assistant professor of sociology at Arizona State University

Student debt exacerbates economic inequality, particularly between white and Black households.

Student loan debt is widely seen as a tool for financing social mobility. Yet that works only when borrowers’ economic standing improves enough over time to repay that debt. For many borrowers, this is not the case. Roughly two out of five borrowers do not finish college in the first place, and this group is disproportionately Black.

Even among graduates, Black students experience much smaller wealth gains from their degrees relative to white students and are burdened with larger debt payments. Black graduates also struggle more with establishing financial independence from their families, partly because discrimination in the labor market makes it more difficult to secure the higher-income and higher-benefit jobs higher education is supposed to provide access to. The result is that two decades after enrolling, Black borrowers still owe over 90% of what they borrowed, compared with less than 10% for white graduates.

This disproportionate burden on Black borrowers is alarming. The Survey of Consumer Finance data for 2019 shows that, relative to whites, a greater proportion of Black households had student loans – 30% to 20% – and those households held larger debt amounts – a median of $30,000, versus $23,000 for whites.

These disparities are poised to widen the already roughly 8-to-1 wealth gap between white and Black households and could make racial inequality worse for future generations.The Conversation

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Kate Padgett Walsh
Kate Padgett Walsh

Kate Padgett Walsh is an associate professor of philosophy at Iowa State University. She publishes on the history of ethics and the ethics of debt. She is interested in the ethical questions that surround borrowing, lending, repayment, and default today, and in contextualizing those questions within historical debates discussions of the ethics of debt. She teaches courses on ethical and moral theory, and she holds a bachelor's degree from Middlebury College, a master's from the University of Wisconsin-Milwaukee, and a doctorate from Northwestern University.

Dalié Jiménez
Dalié Jiménez

Dalié Jiménez is a professor of law, at the University of California, Irvine. Her work focuses on contracts, bankruptcy and consumer financial distress, the regulation of financial products and its intersection with consumer protection, and access to justice. She uses qualitative and quantitative empirical methods to explore the questions of how individuals cope with financial distress, how and whether our legal framework and institutions help or hinder individuals extricate themselves from this distress, and the role of the legal profession in helping individuals with this and other civil legal problems.

Raphaël Charron-Chénier Charron-Chénier
Raphaël Charron-Chénier Charron-Chénier

Raphaël Charron-Chénier is an assistant professor of sociology at Arizona State University. He studies racial inequality in the context of consumer markets. His current projects examine barriers in access to goods and services for Black households, racial disparities in the use and impact of predatory lending, and racial disparities in debt accumulation.