Student Loan Debt in 2020 is Now to Much

The democratic candidates for the 2020 presidential election have raised the issue of a student debt crisis that is striking young adults seeking higher education. Senator Warren and Senator Sanders are among these candidates who have brought the student debt issue that Americans hold to the forefront of issues in America. The United States is notoriously known for the high cost of college education, but currently, the simultaneous rise in cost of tuition and inequality of income distribution is “depress(ing) college attendance”. Inequality of attainment of higher education in our country is largely based on financial status. Many students, especially low-income, are forced to take out loans if they want to attend university, which factors into the 1.31 trillion dollars in student loan debt the U.S. has obtained. Taking out loans in the US is extremely risky with a mortgage style loan system that does not take into account the risks of investing in human capital like education. The UK recently switched from a system of free education to tuition-based in the late 1990s.3 This switch caused rapid increases in college attendance but also increased the inequality of participation. England is the only country that competes with the United States in average debt per student after college. While UK competes with US in average student debt, they have implemented an Income-Contingent loan system, which takes into account the risks of investing in higher education, unlike the U.S. Bernie Sanders and Elizabeth Warren have proposed plans to address and the student debt crisis and the inequality of access to higher education, which has a larger impact on the economy as a whole.

What the Democratic Candidates Have to Say About the Student Debt Crisis

Bernie Sanders campaign proclaims “college for all and cancels all student debt” on his campaign website.As a senator who has always fought for equality across racial, class, and gender inequalities that persist in America, it is not a surprise that he has concerned himself with these issues that persist in the access to higher education across the country. He reports that while 45 million Americans hold student loan debt, around 58 percent of loans in the country are held by women. Also, while 35 percent of Latino borrowers default on their loans, only 20 percent of white borrowers default. Bernie’s goal is to end racial and class inequalities that have persisted and grown in higher education. His plan is to cancel all student loan debt and to keep a cap on student loan interest rates at 1.88%. Along with that he promises tuition and debt-free public colleges and universities with grants to help low-income students pay for non-tuition costs of attending college.

Elizabeth Warren has similar ideas to Bernie and pledges “Affordable Higher Education for All.”8 Her concern is the increasing price of colleges forcing families to take out student loans and falling in debt. Her plan is to cancel up to $50,000 in student loan debt for 42 million Americans. In addition she pledges to make universal free college and allow anyone to attend a 2 year or 4-year college without worrying about the burden of student debts.

Inequality of Entry and Completion of College between 1979 and 2000

Using data from the National Longitudinal Survey of Youth from 1979 and 1997, Bailey was able to analyze the increasing percentages of people entering college and graduation from college for those born between 1921 and 1988. Figure 1 shows the rapid increase in college in the United States entry for those born after 1940.10 For those born in 1940, around 25 percent had some college completed. College entry radically increases for those born in 1988 with around 66 percent of people completing some college. Over about 50 years, college entry increases by about 40 percentage points. The percentage of people born between 1940 and 1990 who completed college increased from around 10 percent to 27 percent. College entry and persistence clearly grew between these years, but Bailey looked more into what income groups were getting accepted and persisting through college.

To look at who was getting into college, Bailey first looked at college entry rates. The groups she chose would be graduating high school and entering college between 1979 to 1982 (born 1961-1964) and 1997 to 2000 (born 1979-1982). Figure 2 compares college entry of groups born between 1961 and 1964 and also 1979 and 1982 by income quartile.13 For the group born between 1961 and 1964, they showed lower fractions of entering college for all quartiles that those born between 1979-1982. For those born in 1961-64, the lowest quartile only showed 19 percent entering college while the top showed 58 percent entering college, a difference of 38 percentage points between the lowest and top quartile. In comparison, for those born in 1979 to 1982, 29 percent of the lowest quartile entered college while 80 percent of the top quartile entering, a difference in 51 percentage points. Bailey points out that college entry is increasing in the United States, but the gaps of entry into college between the lowest quartile and top quartile is also increasing.

Using the same data from the National Longitudinal Survey of Youth from 1979 and 1997, Bailey looked at college persistence across income quartiles. Those born from 1961-1964, again showed lower rates of college persistence and completion than those born in 1979-1982 for all income quartiles. Those in the lowest quartile born between 1961and 1964 showed a 5 percent persistence rate while the top quartile showed a 36 percent persistence rate. For those born in 1979-1982, the lowest quartile had 9 percent completing college while 54 percent of the top quartile completing college. The group born in the years 1961-1964 had a difference of 31 percentage points, while those born between 1979-1981 had a difference of 45 percentage points. Bailey concludes that not only inequality of college entry between income groups is increasing, but also the top quartile is graduating college at a larger percentage.

Bailey looked in to what was driving the growing inequality between the lowest and top quartile of income. She found that the growing inequality of educational attainment is driven by women from the top quartile of the income distribution.