The History of the Current Student Debt Crisis
In the United States, the national student debt crisis has become one of the main talking points during this election cycle. Candidates on both sides of the aisle are talking about what needs to be done in order to help students get an education with burdening them for the rest of their lives with a huge debt. Neither sides are really offering solutions that are going to be universally effective or that are going to help those that are already suffering under a huge debt. But how did we get this way? Even twenty years ago, the education system did not have this issue.
While it might sound like a conspiracy theory, the truth is that there are entities that have profited off of this crisis and that only want it to continue. For example, the lending mega-company Sallie Mae. The original role of Sallie Mae was to be the go-between for students who wanted loans from the government to completely their schooling. A few years after their creation, in 1997, they were privatized, and instead of focusing on providing lending solutions that gave the students what they needed, their goal became to make money. Fees skyrocketed, not just within this organization, but within any organization that was selling private loans.
One of the benefits of having student loans doled out by the government is the ability for the government to provide lower interest rates and better relief options. When education lending went private, the organizations didn’t have to offer those things anymore. Companies got aggressive. Hedge fund managers decided to get involved. It became about how much money could be made, not about making sure that people who wanted educations had the resources to get those educations.
It’s easy to villainize the lending organizations who steered student loans away from their true purpose, but it’s important to remember that the purpose of a company is to make money. If that company isn’t making money, it’s failing. This isn’t true of governments, which is why governments are able to be more flexible with lending options. That said, it doesn’t really make what has happened with student lending any better. Sure, the companies needed to make money, but did they really have to make it on the backs of those trying to get a good education?
In between 2010 and 2013, as student debt really began to soar, Sallie Mae made more than $3 billion. That’s a huge chunk of change. And while the students under those loans started to panic, started to realize that they had taken on loans that were going to be very difficult to pay off, the people of Sallie Mae were placing blame back onto the universities.
Are the universities at fault for the student debt crisis? Partially, yes. Tuition, especially at Ivy League universities has skyrocketed over the last ten year. Even when adjusting for inflation, students today are paying exponentially more than their parents were to attend the same universities, for the same degrees, for the same amount of time. As state funding for universities has been continually cut, they have had to rack up their tuition costs in order to cover their own bills and to continue providing education to their students. As budgets are cut, tuition goes up, and more and more students have to borrow in order to be able to go to school.
And while many people who have these debts are in their twenties and thirties, the issue extends well beyond just millennials. Their parents and grandparents are also feeling the heat, and not just because they are the ones who might have co-signed on those loans. There are people who got loans forty years ago and are still paying off those loans, simply because they were never able to pay more than the minimum payment. And this is how these lending organization are making their money—by offering loans that people will never be able to fully pay off, and sucking them for dry for interest all along the way, even decades after the loan was originally issued.
Student debt is only going to continue to become a larger and larger problem. It is already starting to affect other types of lending, including mortgages, which are supposed to be the most stable type of lending.
Getting educated is extremely important. A bachelor’s degree is becoming the new high school diploma: you just about have to have one in order to get a decent job. But traditional education is becoming more and more expensive and people are starting to realize that they don’t want to be a slave to a student loan debt for the next ten, twenty, thirty, or even forty years.