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Alyssa Hill

Mrs. Jackie Burr, Instructor

English 1010, Section 4

4 December 2018

Higher Education Without the Risks of Student Debt

Millions of Americans are drowning in bottomless student debt, fearful that their college

education will never amount to anything. “I constantly have nightmares that I am trapped — in a

house, a car, a roller coaster. This isn’t anxiety that a therapist can help with. This is something I

did to myself. I have massive private loans and additional federal loans all for my undergraduate

education only” (qtd. in Becker). Like this student, many victims feel as if they will never be

able to repay their loans due to rising tuition and high interest rates.​ ​However, most young adults

do not question whether or not they will continue their education after high school. Obtaining a

degree is a necessity in today’s rapidly progressing world. The demand for higher education is

climbing, and so are the prices. Grants have not gotten any more generous despite this increase in

tuition. Therefore, more and more students have been forced to rely on loans.

Student loans became the largest form of financial aid in 1982 and have remained that

way ever since (Elliot 2). Hypothetically, loans are a safe and reasonable way to secure a

financially stable future. The problem is, many students are uninformed about how quickly

interest rates add up and the deadlines that follow. Most loan applicants are teenagers fresh out

of high school that have never made a major purchase in their life. They are encouraged take on

a debt of several thousand dollars despite their lack of experience and understanding of finances

(Best and Best 2-3). A standard student loan in the United States must start being paid back six
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months after the student graduates or leaves college. Many students fall behind in their payments

before they can even begin to settle into their careers. In addition, not all students who take out

loans end up graduating.

Shockingly, student loan debt is the highest form of consumer debt in the nation except

for home mortgages. Not only does it exceed other types of debt, but there is approximately $1

trillion in outstanding student loan debt between 37 million citizens across the country

(Beauchamp and Cooper 539-40). When people are unable to repay their loans, private and

federal lenders fall into debt as well. This proves that student debt is more than an individual

problem. The market is bound to crash if students continue to default and delinquent their loans.

In recent years, politicians and news reporters have made student debt a topic of interest.

Following the recession of 2008, thousands of student protesters rampaged the streets of New

York City, demanding loan forgiveness. The degrees they had earned cost them everything, yet

they struggled to find work. Unfortunately, debt does not simply disappear after it is forgiven.

The burden of the loans fall on the government, which is then forced to raise taxes in order to

pay back the accumulating debt. Amnesty puts the nation at risk of another recession. This time

the crisis will be caused by an education bubble rather than a housing bubble. Without reform,

student debt will continue to skyrocket because of limited state funding, complex loan repayment

systems, and rising institution costs.

Many states have taken dramatic cuts to education funding in recent years. The majority

of the reductions took place during the 2008 recession when states were struggling to rebalance

their budgets. They found it was an easy place to cut, especially since other areas, such as health

care, needed more support. Educational funding has been reduced to less than 30% of the overall
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budget in most states (Curran 1). This downward trend is natural during an economic crisis.

However, it has been nine years since the end of the recession, and there have hardly been any

improvements in funding. State tax revenues are rising slowly, but it is likely that “funding will

not recover to levels seen in the past.” The funding for several states, such as Louisiana,

Mississippi, Arizona, and New Hampshire, are still plummeting rapidly. Louisiana in particular

saw a 5.2% decrease in higher education support (State Funding 58-9).

Another way states are cutting back funding is by reducing the value of Pell Grants.

These grants are still available to low-income students but now they only cover a fraction of their

college expenses. Because loans are more accessible, state legislatures have falsely assumed that

grants are no longer as necessary (Best and Best 2). Low-income students may be forced to

reconsider which colleges they want to attend if they cannot acquire the grants they need.

The primary reason for states lowering their funding rates is because they believe

individuals are the only ones reaping the benefits. However, there are many ways educated

people improve the whole society. Populations with higher numbers of educated citizens tend to

be more innovative and economically successful. The solution to this lack of state funding is to

persuade local government leaders that higher education is for the good of society and accrues to

all (Curran 1). Kosh compares higher education to a vaccination:

Getting a vaccination against a communicable disease is of value to the individual but it

is also of value to the community. If enough people get vaccinated, the instances of the

disease lessen and overall health improves. Thus, often programs such as vaccination are

mandated by the government because it is what is best for all, both the individuals and
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the collective benefit… If education is a merit good, then isn’t it in the best interest of the

State and its citizens to fund higher education? (para. in Curran 1)

Another reason for increasing debt is the complicated loan repayment system in the

United States. The first step for being able to take out loans is qualifying for credit. There are not

many requirements for federal loans but private lenders are a little more cautious. The interest

rate on federal loans is based on the market rate at the time when the loan is created. This

explains why people who took out loans during the recession have some of the highest interest

rates in the nation even though the market has since recovered. Payments are made in monthly

increments over a 10 year period (Chingos and Dynarski).

Private lenders usually have strict terms and conditions. Unforgiving and slow to

compromise, most students avoid private loans. However, the federal government is only willing

to lend so much. In contrast, many private lenders do not put a limit on how much a student can

borrow. They examine how much a student is borrowing and the institution they are attending to

determine the interest rate. With some rates exceeding 18%, students can quickly double, or even

triple, the amount they original owed (Beauchamp and Cooper 544).

Income-based repayment is another option for recent borrowers. Monthly payments are

limited to 10% of disposable income. Disposable income is considered any earnings 150% above

the poverty level (Best and Best 3). This way, students are not forced to choose between

affording groceries or paying their loans. Any remaining debt is forgiven after 10-25 years. The

problem with this method is that it requires filing mountains of paperwork with the government

annually. Missing forms or information could force a student back into a 10 year plan, often with

higher interest rates than what they started with. Although this plan is designed to be more
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personalized, it is “hard for borrowers to navigate, especially in times of financial stress”

(Chingos and Dynarski).

Students in other developed countries do not seem to have as much trouble repaying their

loans. In fact, the U.S. has accumulated more debt through and by student loans than any other

nation (Beauchamp and Cooper 545). Therefore, America must look to its fellow countries for a

solution. Sweden has one of the best repayment systems because of its extremely low interest

rates and extended period of time. 0.13% was the interest rate for 2018 compared to the federal

U.S. rate of 5.05%. Sweden’s system is also appealing because payments are made over the

course of 25 years instead of 10, giving the borrower time to increase his or her income.

Payments start out small but grow by 2% each year. This increase tends to follow the rate at

which income rises.

Australia is another country with a popular loan repayment system. Until income exceeds

$44,000, borrowers do not have to start making payments. There are no deadlines for when the

debt needs to be repaid. As long as the borrower is alive and making enough money, the

government collects their payments each month. Loan payments are automatically taken out in

the form of taxes through an employer. It is a simple method that requires little government

paperwork. Despite the lack of a deadline, most Australians have their debt repaid in 9 years and

defaults are rare (Chingos and Dynarski).

From the examples of Sweden and Australia, it appears that the best student loan

repayment systems are income based with extended time periods, low interest rates, and can be

collected automatically. The United States would benefit by making these changes to the system.

Inexperienced students appreciate simplicity and need plans that are easy to navigate.
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Increasing tuition has been a developing problem since the 80s, when higher education

began to grow in popularity. However, the most drastic increases occurred with the recession.

Between 1997 and 2008, undergraduate tuition at public institutions rose by about $5,000.

Meanwhile, private universities during the same time period rose by $11,000 (Nelson 18). The

University of California is one example of rapidly increasing tuition. After taking 7 increases in

the past 8 years, the annual bill now exceeds $24,000. By the time a student graduates, they will

owe about $100,000 (Curran 2).

The issue with these rising costs is that household incomes cannot keep up. While tuition

costs for a 4-year degree have increased by over 200% in the last 30 years, family income has

only increased by 10% (See Figure 1). At these rates, college tuition will never align with

Figure 1. The relationship between median family income and college tuition between 1984 and

2012. (​“Median Family Income Has Not Kept Pace with College Costs.” Chart. ​The Century

Foundation,​ 2012. Web. 12 Nov. 2018.)

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household​ ​income. On average, Americans have lower wages now than they did in 1999.

Stagnant income has not stopped institutions from rising their prices. If the United States is

already over $1 trillion in student debt, it is terrifying to imagine what level it will reach in 50


The solution to this problem rests in the hands of the universities themselves. Institutions

are the ones who set the costs, and individuals have little say in what they choose to do with the

tuition. Defined as a public good, higher education should be affordable to all. University costs

dominate almost every public service. It is the responsibility of the institution to keep the net

prices under control (The Best 50).

In conclusion, the future economy of the United States is under extreme stress due to the

student debt crisis. Although it may be difficult to eliminate the existing debt, there are ways to

prevent it from declining further. First, local and federal governments must realize the

importance of an educated society. By funding higher education, they are promoting economic

growth and technological development. Even a slight increase in funding could open doors for

low-income students who could not afford college otherwise. Reforming the loan repayment

system could also improve the situation. Other developed countries who have successfully

managed student debt depend on simple, income-based plans with lengthy deadlines. Finally,

institutions must be persuaded to lower their tuition costs in order to make their programs

available to more students. College graduates are the future leaders, innovators, and

entrepreneurs of America. The least educational and government institutions can do is relieve

some of the fear and stress that comes with paying for higher education.
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Works Cited:

Beauchamp, Brenda, and Jason R. Cooper. “Survey 2014: Bankruptcy + Student Loan Debt

Crisis.” ​Touro Law Review​, vol. 30, no. 3, July 2014, pp. 539–560. ​EBSCOhost​,

Becker, Sam. “$100,000 Deep: These Student Loan Horror Stories Have Important Lessons to

Teach.” ​CheatSheet.​ CheatSheet, 14 Nov. 2017. Web. 30 Nov. 2018.

Best, Joel, and Eric Best. “Beth Akers and Matthew M. Chingos, Game of Loans: The Rhetoric

and Reality of Student Debt.” ​Society,​ vol. 54, no. 4, Aug. 2017, pp. 372–374.

​EBSCOhost​, doi:10.1007/s12115-017-0155-4.

Chingos, Matthew and Susan Dynarski. “An International Final Four: Which Country Handles

​ ew York Times, 2 Apr. 2018. Web. 14 Nov.

Student Debt Best?” ​New York Times. N


Curran, Catharine M. “Publicly Funded, Publicly Supported, Publicly Endorsed: The Fate of

Public Higher Education.” ​Marketing Education Review​, vol. 19, no. 3, Fall 2009, pp.

1–2. ​EBSCOhost​,

Doyle, William R. “Playing the Numbers: The Best Bad Option.” ​Change​, vol. 44, no. 2, Mar.

2012, pp. 49–51. ​EBSCOhost​, doi:10.1080/00091383.2012.655235.

“Playing the Numbers: State Funding for Higher Education: Situation Normal?” ​Change​, vol. 45,

no. 6, Nov. 2013, pp. 58–61. ​EBSCOhost​, doi:10.1080/00091383.2013.842112.

Elliott, William. “Student Loans: Are We Getting Our Money’s Worth?” Change, vol. 46, no. 4,

July 2014, pp. 26-33. EBSCOhost, doi:10.1080/00091383.2014.925757.

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“Median Family Income Has Not Kept Pace with College Costs.” Chart. ​The Century


2012. Web. 12 Nov. 2018.