When I speak on college campuses, I ask students to write the amount of debt they anticipate graduating with on a slip of paper.
In a recent class of 25 undergraduates at Boston College, just eight will graduate without debt, either because of full scholarships or family wealth. For the rest, an imposing debt looms — $40,000 on average, but with six reporting more than $150,000.
Can you imagine being 22 and having $150,000 in debt? This is generational abuse.
Previous generations were propelled forward by free or very low-cost higher education at land-grant universities and robust free college systems in states like California and New York.
Entrepreneur Dariel Garner attended both undergraduate and graduate school at University of California, Berkeley, free between 1968 and 1975. “I got a world-class education for free,” he told me. Within decades, he’d amassed a multi-million dollar fortune from several enterprises.
Garner blames the withdrawal of state support for public higher education as a driving factor for the ballooning debt of today’s grads. “We used to tax the rich and invest in public goods like affordable higher education,” said Garner. “Today, we cut taxes on the rich and then borrow from them.
Overall state funding for public colleges has fallen $7 billion below its 2008 level. Colleges have cut faculty and increased tuition and fees, effectively shifting the bills onto students and their families. Many students drop out, unable to finish their schooling due to rising costs.
Putting tens of millions families into debt servitude serves no economic or societal purpose. It’s damaging not only to individual finances but to society and the economy as a whole.
A mountain of research shows that student debt is tripping up the next generation, just as they attempt to hit their earnings stride. Student debt delays household formation, discourages entrepreneurship and public service, and thwarts homeownership, among other forms of wealth building.
No wonder a shrinking percentage of college graduates feel their degree is a ticket to the middle class, according to a long-running survey of U.S. social attitudes.
According to the Federal Reserve, monthly student loan payments increased from $227 in 2005 to $393 in 2016.
More than 44 million households are saddled with student debt averaging in excess of $37,000. The total student debt burden of $1.5 trillion now exceeds total credit card debt, and is only second to consumer mortgages.
One in five of these loans are in default. And those who attended predatory for-profit institutions are disproportionately likely to fall behind on their student loan payments.
The only beneficiary of this debacle is a parasitical student loan industry — a leech on the economy.
Nearly all Democratic presidential candidates have put forward plans to address the issue. “There is more consensus about the need to go big on college affordability” than ever, observed Mark Huelsman, a policy researcher at Demos.
Sen. Elizabeth Warren has a comprehensive plan to reduce existing student debt and establish universal free public college.
“The enormous student debt burden weighing down our economy isn’t the result of laziness or irresponsibility,” she said. “It’s the result of a government that has consistently put the interests of the wealthy and well-connected over the interests of working families.”
Warren’s plan would cancel up to $50,000 in student loan debt for households with income under $100,000 and provide some debt relief for households with incomes up to $250,000. She also proposes a new federal investment in public higher education that would eliminate the cost of tuition and fees at every public college, splitting the costs with states.
The one-time debt cancellation plan and universal free tuition going forward would be paid for by a 2 percent annual wealth tax on households with fortunes of more than $50 million.
Students in California have put forward a similar plan to restore California’s estate tax, a levy paid only by households with wealth of more than $5 million, to reduce tuition for 2.2 million California students at public institutions.
These are good ideas. Ending the generational abuse of student debt will expand educational opportunity, unburden our young people, and boost the economy for all.