For many students, the entire concept of college can feel intimidating — especially the price tag. America is notorious for its woefully expensive higher education, with the average cost of college for the 2017–18 school year amounting to “$20,770 for [in-state] public schools and $46,950 for nonprofit private schools, only including tuition, fees, and room and board,” per Lending Tree. As of 2021, student loan debt in the United States is out of control: Approximately 44.7 million Americans have student debt, with each borrower owing an average of $32,731, per the Federal Reserve. Perhaps worst of all, the people most directly involved in the crisis are the ones least able to understand or advocate for themselves — 17- and 18-year-olds who are taking out thousands of dollars in loans before they’ve graduated high school.
We spoke to two experts about what you really *need* to know about student debt, both as a political issue and as the personal issue hitting your bank account every month. Bonnie Latreille is the director of research and advocacy at the Student Borrower Protection Center (SBPC) and has dedicated her career to protecting future and former students from predatory student loan practices. Morgan Royal is the campaigns director at New Era Colorado, where she organizes grassroots voter initiatives to help bring issues with student loan debt to justice.
This interview has been edited for length and clarity.
Why has student loan debt become such a crisis in America?
BL: Student borrowers become saddled with debt as a result of collective state and federal policy decisions — first, to defund higher education and second, to deregulate the student loan market. What I mean by the first part is if you don’t come from a family that’s independently wealthy to pay for your education, you have two choices: take out student loans or don’t attend school.
The second part of this is as student loan borrowers try to navigate loan repayment, they’re doing so in a market that really isn’t designed to work for them. States have pulled away from funding higher education, lenders’ business models are designed to get as many debtors as possible, and taxpayer-funded companies are designing their business models on churning borrowers through call centers as quickly as possible. Every financial incentive is designed to make sure borrowers aren’t getting the information they need. You can be the most financially educated person on Earth, but you don’t stand a chance against the Navients and Sallie Maes of the world.
MR: Student debt has snowballed due to two mutually exacerbating trends: a growing demand for a college degree while the cost of college has skyrocketed. In Colorado, public investments in higher education have diminished over the years due to a restrictive and regressive tax policy that’s facilitated significant cuts to higher education funds — causing state tuition rates at public schools to rise by 31% between 2002 and 2010. It has impacted our state for decades. This has led to more and more students and families turning to student loans to fund their education.
Meanwhile, across the country, we’re dealing with an unregulated and unlicensed student loan servicing industry. Student loans are the only type of major consumer loan without annual licensing requirements for servicers and consistent state and federal regulations. This lack of oversight means student loan servicers can get away with shady behavior, including discouraging borrower-friendly payment plans, making payment processing errors, failing to respond to questions, and failing to give upfront information to borrowers about their options when they’re navigating the repayment process. Student loan lenders and servicers benefit from these practices because borrowers end up paying more interest on their loans when they aren’t given upfront information about repayment or are discouraged from borrower-friendly repayment plans.
So, what's most harmful when it comes to trying to pay those loans back? When do loans actually get predatory?
BL: When students are looking at loans to pay for school, they have two options: federal student loans, offered by the U.S. Department of Education (DOE), or private student loans. Federal loans have repayment protections and options if you have problems. But private student loans don’t have those protections, and that’s where we see a lot of predatory lending practices.
These private lenders target single moms, people of color, and first-generation students with high-cost loans that are “designed to fail” because the terms are so predatory. These lenders say, “Look at this great deal — you can go to college! Don’t worry about paying now. Look at our inflated job statistics and salary rates! You’ll have no problem paying us back.” And when that false narrative doesn’t pan out, it’s not the borrower’s fault. They were actively deceived by these companies. These types of private loans make up about 7.71%, or $123.14 billion, of student loans debt.
Another predatory factor is loan servicing, and I’m talking about private companies brought in to manage repayment of both federal and private loans. These servicers are contracted out to handle payment processing, database management, and more. In February 2019, the DOE’s inspector general reported more than 60% of oversight reports from 2015 to 2017 include instances of servicers acting improperly. The DOE should be overseeing its contractors regularly.
Black and African American college graduates owe an average of $25,000 more in student loan debt than white college graduates. Can we consider this a racial justice problem as well as a financial problem?
BL: There is unquestionably a civil rights crisis within the student debt crisis. Students and families of color statistically have less wealth to pay for college, which means Black and brown students must take on more debt to pay for school. They then graduate into an economy where Black and brown workers make up to $13,770 less than white workers and are subject to astronomically disparate loan default rates. Depending on what dataset you’re looking at, the default rates for Black borrowers are three to five times higher than white borrowers, even if everything else is constant. There’s systemic racism at every point in the cycle. Black and brown borrowers are doing everything they’ve been told to achieve the American dream, but they keep getting kicked down.
How can the U.S. government begin to address the student debt crisis?
BL: The Consumer Financial Protection Bureau (CFPB) has an explicit duty to protect consumers against predatory loan practices. But under President Donald Trump’s administration, the CFPB entirely stepped away from its role in overseeing the student loan market. The DOE also plays a role: At the end of the day, 92% of the student loan market is federal student loans. So, DOE has its hands on 92% of student debt, which means the federal government has the authority to cancel it under the Higher Education Act of 1965.
The private loan servicers managing this federal student loan portfolio are contractors supervised by the DOE. But there’s just not enough regulation of loan servicers, and the regulation that’s already in place isn’t being enforced strongly enough. While the DOE theoretically benefits because it’s less burdened with oversight and administrative responsibilities, the entire economy is missing out.
MR: Student debt cancellation is a clear way to address the racial wealth gap because students of color, especially Black students, are more likely to have higher debt burdens. Young people clearly want serious progress when it comes to economic justice and stand behind legislation on student debt reform, taxing the wealthiest Americans, and pandemic relief, which includes canceling rent payments and increasing the minimum wage.
At the same time, there are deeper institutional causes to this crisis. In addition to broad, comprehensive student debt cancellation, we need to address the systemic and institutional causes of the student debt crisis by supporting an accessible higher education system and an economy that works for everyone.
One of Biden's big campaign promises has been to erase some student debt, but as of May 2021 that hasn't happened yet. Is that promise really feasible? Why hasn't it happened?
MR: We’ve seen broad debt cancellation happen in other areas, like the Paycheck Protection Program loans (PPP), so we know student loan forgiveness is feasible. Legislators and leaders have been calling on Biden to push for student loan debt cancellation, and it absolutely can happen. If it does happen, it would be incredible for low-income Black and brown communities who wouldn’t have had access to higher education otherwise. But one potential roadblock to canceling student loan debt is that for opponents, doing so may be seen as a “handout” or “government waste” when that is absolutely not the case. (Editor’s Note: Researchers have found that large-scale student debt cancellation could “boost real GDP by an average of $86 billion to $108 billion per year,” decrease racial wealth gaps, and drive overall economic growth.)
From what I encounter the most in my work, I think the biggest roadblock is the current pushback that’s out there, and the fundamental misunderstanding around cancellation and why it’s needed.
What’s your best advice for students who are just entering this student loan system?
MR: The biggest thing students should be aware of are the terms of repayment for your student loan, which can be found in your loan agreement. This includes knowing information about your interest rate, when the repayment period will start, what the monthly payments look like, and what the options are for repayment. Avoid high-interest rate loans and loans that don’t offer flexible repayment. Unfortunately, many students are taking on private student loans because they’ve run out of options for federal student loans.
BL: Explore and exhaust all of your federal options before you turn to private student loan debt. Federal loans are safer, they offer more protections, and they’re designed to accommodate changes in your financial circumstances. Additionally, keep meticulous records of everything. Document your communications with your student loan servicer, and if you run into problems, you should complain early and often to everyone. The more attention you can get, the better. I know some people feel too ashamed to talk about their student loan debt, but that shouldn’t be the case. You should be loud, vocal, and call these companies out.
In Elite Daily's series .EDU (Elite Daily University), we ask experts to explain everything you need to know about hot-button issues. Read more here.