Student Loan Debt: Why is there so much of it?
The average student loan debt for a student graduating college in 2018 was $29,200, and continues to rise every year. Overall the country owes more than $1 trillion in student loan debt. For students of color, the student loan debt burden is often much higher. For decades, the cost of college has steadily climbed while wages have remained flat, which has naturally led to borrowing. But why have the costs climbed so much?
The rising cost of college is often blamed on things like administrative bloat and high spending on non-academic campus facilities. To some extent this is true. Schools hire more administrators now than they ever did before, and there are infinitely more rock walls and lazy rivers on college campuses than there were 20-30 years ago. While these have an effect on the rising cost, a much bigger contributor to rising tuition and therefore rising student loan debt is a lack of government funding. One study from the Center on Budget and Policy Priorities, a left-leaning think tank, found that, when adjusted for inflation, state funding for 2 and 4-year public universities was $9 billion less than it was before the Great Recession. This lack of funding has led state universities to raise tuition and cut educational programs. State universities are almost universally more diverse than private universities and are more likely to attract students from lower socioeconomic status due to lower cost than private universities. That rise in tuition has naturally led to a rise in student loan debt. For example, in the 2006-2007 academic year, Arizona State University cost $4,690 (about $5,800 when adjusted for inflation) for a full-time, in-state student. In the 2019-2020 academic year, in-state tuition was $10,710. That 85% tuition hike (when adjusted for inflation) was made necessary in large part by the Arizona legislature leaving it with 54% less funding than pre-recession levels.
On the federal level, spending has not kept up with the pace of cost increases. The federal government spends around $75 billion per year on higher education, with about $43 billion of that going to financial aid programs (primarily the Pell Grant, veteran’s benefits, and other financial aid programs). Most of the rest of the money goes to research funding. The Pell Grant, a need-based grant for undergraduate students from families that make less than $50,000 per year that accounts for more than half of the $43 billion in federal financial aid spending, had a maximum value of $6,095 in 2019-2020. The average in-state tuition at a public university was $10,116, so a full Pell Grant covered 60% of tuition. For comparison, in 1999-2000, the Pell Grant had a maximum value of $4,810, and the average in-state tuition was $5,170, so it covered 93% of tuition. Many states and schools will make up the difference with other forms of financial aid, but loans are often a part of that aid.
So why the borrowing? Because the government is not funding higher education properly. Even though the economy had largely recovered from the Great Recession, state and federal higher education spending never did, and those funding cuts were passed directly on to students, leading to higher student loan debt. And here we are in a pandemic and likely another economic crisis, which leaves us at a dangerous crossroads. With the decades long decline in high paying jobs that don’t require a degree due to automation and global economic forces, college is increasingly becoming a necessary investment to lead a middle class life, another round of budget cuts to higher education will likely intensify this student debt issue.
