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American Student Assistance recently released an update to our Life Delayed study. The results were largely consistent with and extended our original survey’s message: Student loan debt is having a profound impact on the daily lives and spending habits of young Americans long after they leave school, regardless of the type of institution they attended or the level of credential earned, and preventing many from participating fully in our economy.
Highlights of the study show 62% of respondents said their student debt posed a hardship on their personal budget when combined with all other household spending. Specifically, 35% of respondents said they found it difficult to buy daily necessities because of their student loans; 52% said their debt affected their ability to make larger purchases such as a car; 62% said they have put off saving for retirement or other investments; and 55% indicated that student loan debt affected their decision or ability to purchase a home.
While recent other reports have pointed to student debt as being a crisis for only certain portions of the student population, large swaths of Life Delayed respondents from all institution types reported having difficulty with their debt. Community college students faced the biggest challenge, with 49% saying it is difficult or very difficult to make student loan payments, while 48% of private institution borrowers and 40% of public school borrowers said they faced similar challenges. Forty-three percent of graduate school borrowers said they find it difficult to pay student loans each month.
These results made me think about the difference between perception and reality. In the ongoing debate as to whether or not a student debt crisis exists, many researchers rightfully point to data that shows only small amount of students default, primarily confined to students who drop out before completion and/or attend certain types of institutions. That may be so, but a) default is only the tip of the iceberg – there are many more who get behind on payment and damage their credit, without ever defaulting; and b) even more importantly, many more borrowers (who will never default or even become delinquent) perceive they’re struggling with their student loans or feel the debt is a burden. Their perception of the debt, and how it impacts their other financial decisions, is their reality and is just as important as the reality of whether or not they’re making their student loan payments on time.
We cannot make the assumption that just because loan payments are being made, the debt is not a burden. In reality, many borrowers are making huge sacrifices to both pay down their education debt and stay financially afloat. If a borrower pays his student loan religiously every month, but feels he has to forego buying a home, a car, saving for retirement, or putting away college savings for his own children, can we really say there’s no problem? He may be successfully managing the education debt, but it’s at the expense of his entire financial wellbeing. And, in a consumer economy, his financial wellbeing impacts all of us, when he doesn’t start a household and purchase the necessary consumer goods that keep our economy running now and in the future.
The crisis naysayers fear that admitting there’s a crisis will make policymakers jump to drastic measures, like restricting borrowing to the most creditworthy or focusing solutions on high-debt borrowers, when it’s the dropouts with $5K in student loans who really need the help. My fear, though, is that if we continue to sweep the crisis under the rug and whistle past the graveyard, nothing-to-see-here style, then we’ll never confront the bigger policy issues around making higher education affordable. As I’ve written in the past, higher education is a public good and as a society we should commit to shouldering some of the financial burden so it’s affordable and accessible to all who are academically qualified. If we don’t put a stake in the ground now and unequivocally aspire to free (or debt-free) public K-14 education as the new norm, then when will we?