Far from the 1960s American promise of a nuclear family — a heterosexual couple, their 2 to 3 children and a stable unionized job with a guaranteed pension — college students now face a complex and troubling outlook. Today, many American college students and recent graduates are confronted by egregious student loans, a significant barrier to economic mobility in the United States. 

Not only are excessive loans a driving reason for students to drop out of school, but over half of indebted graduates claim that their loans have decreased their credit scores and forced them to delay saving for emergencies. Unfortunately, the brunt of this burden is on minority communities. Specifically, Black college graduates on average owe $25,000 more than their white counterparts. These diverse students have fewer job opportunities, contributing to the fact that default rates are 36% and 49% among Hispanic and Black borrowers, respectively, compared to just 21% among whites.

This amounts to an American crisis affecting the way 53% of borrowers choose their careers. It also decreases entrepreneurship and overall economic consumption while precipitously increasing household debt, and the problem is only getting worse, with student debt slowly encroaching on overall household spending.

In 2019, the average student owed $30,062 upon graduation, which represents about a 26% increase  over the last decade. Furthermore, the average 2019 college graduate makes $53,889 per year. The average loan payment is $393 per month, which means that the average graduate uses 8.75% of their yearly salary on loan repayment. Compounding on this, recent graduates of color typically have fewer opportunities for recent graduates. 

Now, while it is easy to dismiss this as an issue plaguing some individuals who were swindled into signing onto unaffordable loans, this is actually a systemic failure that has spiraled into a crisis that threatens our economy on multiple levels. At the micro-level, college dropouts make 35% less than graduates, which, in 2011, amounted to $3.8 billion per year in lost wages and likely more in lost economic output. At the macro-level, the federal government holds $1.5 trillion in student loan debt,accounting for 29.8% of all government assets. Holding these high-risk assets is costing taxpayers $170 billion from 2017 to 2026. The current trajectory of this crisis, especially due to the onset of the COVID-19 pandemic, is untenable. Our government needs to formulate a comprehensive, multi-pronged approach to mitigate this impending crisis and develop more opportunities for economic mobility through education.

Now, many at the federal level have devoted a significant amount of time and effort to fix the problem, specifically proposals from Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., for the cancellation of student debt. While both of these are admirable efforts that would make the problem better than it is currently, there are two main issues. 

Primarily, the idea is politically infeasible. But even if it weren’t, it would only provide an economic multiplier of 0.08x to 0.23x, which are both low returns — especially relative to infrastructure spending that provides a 1.6x multiplier in a recession. Instead, many on the more moderate end of the spectrum have chosen to advocate for modest reforms like increasing the availability of Pell Grants or switching the system to income-based loan repayment, both of which would help mitigate the crisis.

With that being said, I personally prefer a more market-based solution. Specifically, to free working capital, the federal government should increase the scope of the current Public Service Loan Forgiveness program. Currently, PSLF forgives federal student loans for those who have paid loans on time and worked for ten years in the government, a nonprofit, AmeriCorps or the Peace Corps. However, if the government were to expand the program through a public-private partnership, they could vastly increase the number of jobs that are available to recent graduates and decrease the amount of outstanding student loan debt.

The system could operate in four different funding categories: large and medium-sized businesses (above 100 employees), small businesses (100 employees and under), 501(c)(3) nonprofits and state governments and federal agencies. All businesses participating must meet certain diversity standards and a $15 minimum wage. 

In exchange, the federal government would introduce a matching program: providing 50% of the new hires’ salaries (up to $50,000 per year per employee) in treasury bonds at large and medium businesses, 75% of the new hires’ salaries (up to $75,000 per year per employee) in subsidies at small businesses and nonprofits and a Medicaid-like dollar-for-dollar matching program with state governments.

In order to incentivize students to go into small businesses, nonprofits and government careers, PSLF requirements would be altered based on the category. For small businesses and government, students would have to work for seven years. For nonprofits, students would only have to work for five years.

This desperately needed update to the PSLF would free students from the shackles of student loans more quickly while ensuring that the backers of these loans retrieve their principal. This, in turn, would create a large multiplier whose shockwaves would be felt across the nation, providing a sustainable roadmap for long-term growth. 

With that being said, there are many other ways of fixing this uniquely American problem, and, no matter your ideology, you should do the research and get behind one solution to student debt — our elected officials won’t fix this issue unless we make them.

Keith Johnstone can be reached at keithja@umich.edu.

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