What Can We Do About the Student Loan Debt Crisis?

The Problem

College loan balances have reached an all-time high of $1.5 trillion. 44 million students share this debt with an average of $29,000 per student. More than 10% are already 90 days delinquent on their payments. By 2023, about 40% of borrowers will default on student loans, amounting to $560 billion in unpaid debt.

It’s not hard to expect a collapse in the student loan market similar to the collapse in the subprime mortgage market that led to the recession after the 2008 financial crisis. Hollywood made a great movie about the mortgage crisis called The Big Short. After the student loan collapse, I’m sure they’ll make another.

Student loans can come from the federal government or from private sources such as a bank or financial institution. Loans made by the federal government, called federal student loans, usually offer borrowers lower interest rates and have more flexible repayment options than loans from banks or other private sources.

It’s a Vicious Circle

There are so many loans, and they are so big because the growth rate of tuition has far exceeded regular inflation over the past 20 years. And the government continues to give out student loans like candy, allowing colleges to continue with their tuition hikes because they know someone will pay.

In America, the college degree is perceived as the gateway to success. But some degrees don’t live up to this promise. However, students still pursue them and continue to feed this reckless machine.

What Does Tuition Heroes Do?

Tuition Heroes™ tracks annual tuition levels (including required fees) for every higher education institution in America and calculates a rolling compound annual growth rate (CAGR).

The CAGR provides the year-over-year growth rate of tuition over time and describes the rate at which tuition would have grown if it grew at a steady rate.

If an institution’s CAGR is 2.5% or less, they are rewarded Tuition Hero status. We use 2.5% because it’s a good approximation of the consumer price index (CPI), and tuition levels shouldn’t be growing faster than the CPI.

Who Are the Heroes?

In 2018, only 30% of all colleges in America made the cut. That’s a significant improvement since 2014, when only 21% were granted Tuition Hero status. You can view the heroes here.

We started this project in 2014 with a mission of stabilizing tuition…thinking that peer pressure may help solve the problem. By recognizing those colleges who were responsible with their tuition increases, we feel others may step up to the plate too.

It seems to be working. There are more Tuition Heroes than there used to be. The numbers are still very low (30% in 2018), but they’re moving in the right direction. We have no evidence that Tuition Heroes is the cause for this positive change, but we’d like to think we’re having some effect.

But even if tuition growth does stabilize, the rates are so high now that most students and their parents can’t afford college without taking on huge student loans.

What’s Being Done?

Some companies are helping their employees by matching loan repayments. This is awesome, and we applaud those companies that are leading this movement. But many students graduate without a job or get a job where they are underemployed and still can’t pay the debt.

There is also controversy on Capitol Hill as to whether or not these loans can somehow be forgiven. Although some students and parents may have been duped into getting student loans, I wonder what kind of precedent this would set. The government and taxpayers certainly can’t afford to forgive the debt.