How to Solve Student Loan Problems?

Last Update: February 22, 2021 • College Students • Loans •

Are student loans another bubble yet to burst that will crash the US economy? It might seem that way as the total debt is $1.5 Trillion and the average class of 2019 graduate owing $35,205. However, hope isn’t lost, and there are potential ways to mitigate this 800-pound gorilla. I believe that there are ideas that everybody can agree with, which potentially include making the entire payment tax-deductible, holding lenders more accountable, encouraging alternative careers along with skills-based majors.

Tax-Deductible

Currently, $2,500 of student loan interest is tax-deductible. However, this phases out at $80,000 for single filers and $160,000 for married filing joint. This is somewhat insignificant considering many professionals like lawyers and doctors can make six figures fresh out of school while having six-figure debt loads. This large debt load and limited deduction could deter many professionals from severe shortages. In fact, the U.S. faces a 90,000 doctor shortage by 2025. While this has many causes, large student loan debt is a significant factor. Also, these large debt loads will deter entrepreneurship. For example, 90% of dentists are self-employed, significantly dropping.

Another startling statistic is that the US Government will make $66 billion in profit off student loans. Since the government greatly profits off borrowers, they should consider making the entire payment tax-deductible. This will motivate students to finish their degrees on time and find good jobs. These students won’t be desperate to work lower-wage jobs and could potentially afford to be choosier to find better-paying jobs. This will also motivate more college material students to apply and obtain diplomas.

Student loans are also hindering the economy by curbing spending. Many millennials have limited funds to make significant life choices like getting married or buying a home. Most of their discretionary incomes are funneled to loan payments, creating large opportunity costs. For example, by not investing early enough, these borrowers will miss out on compound interest benefits, which exacerbates the retirement crisis. Currently, the average balance for those approaching retirement is a paltry $12,000, while 45% of Americans have saved nothing. Many factors influence dismal retirement statistics, but student loans cause an adverse ripple effect, with some 60-year-old still owing.

Hold Lenders More Accountable

Another significant reason behind high tuition costs is the availability of government loans. The lenders should be held accountable for approved loans and help guide people towards sound decision making. Many lenders will give out loans like candy to clueless 18-year-old. The lenders should have stricter requirements like basing finance decisions on background checks and possible majors. This will give financial institutions an insight into the type of borrower they will be working with. Unlike mortgages, student loans aren’t secured by an asset and carry a higher interest rate. Lenders shouldn’t think about only the rate they would receive and the long-term impact of defaults, especially since more than 40% of loans are in default.

Other Careers

A few decades ago, a college degree was the golden ticket to a 40-year career and a solid middle-class life. However, times have greatly changed, and many graduates are working low-end jobs requiring a degree. In fact, the college has become the new high school because of this trend. These graduates have been told their entire lives that college is the only way to succeed. However, there are many ways to reach success, including alternative careers. Some of these alternative careers include trade jobs like auto mechanics, carpenter, and electrician. Other modern alternative careers include web development and design. Fortunately, many careers don’t require a degree and have high earning potential.

Many people are in alternative careers, so that college demand will drop. Thus, the prices will also drop due to basic economics. This simple economic law will be a major first step to make university prices reasonable. This will also help improve the economy because they will always be around. No matter how complicated society becomes, it will always need plumbers and mechanics.

Skills Based Majors

College degrees greatly vary and aren’t created equal. For example, some STEM fields majors (think engineering and math) have higher earning potential and better job prospects than soft majors like communications. Any program will give graduates certain skills, but others have more opportunities. In fact, the U.S. Department of Labor states that there will be an estimated 1.2 million job openings in STEM-related fields by the year 2018. This shows that there’s a great opportunity available to those that obtain these degrees. While these degrees are generally more challenging than others, the return on investment is usually higher.

The price of a degree may have grown 6% more than the inflation rate, but has its value kept up? This is debatable as many graduates report hardly learning anything. For example, Business Insider reports that 36% of students learn next to nothing after 4 years. One possible explanation is that colleges teach for the test and don’t require critical thinking. In fact, many students report being given similar questions before the test, which only teaches memorization.

One way to mitigate this is to encourage project-based learning. By having project-based learning, students will learn critical skills and prepare them for the job market. Many employers hesitate to hire someone with minimal experience. This leads to the “you need the experience to get this job” catch 22. If graduates obtain more relevant experience, they will be able to find higher-paying jobs and pay off their debt.

This situation might seem dire, but there are ways to solve this problem. Student loan proposals can be controversial, but there are plans that everybody can agree with. Some proposals could include tax-deductible payments, accountability for lenders, alternative careers, and practical majors. What else can mitigate the student debt problem? Please tell us below!