Student loan debt is a complex issue causing a lot of pain among many who borrowed money in college, panelists at a Cap Times Talk agreed Monday.
But it might not be a national crisis.
“I find it difficult to see how 43 million Americans with $1.4 trillion in debt is not a national crisis,” said Analiese Eicher, program director at One Wisconsin Now.
Derek Kindle, director of UW-Madison's office of student financial aid, said he wasn’t sure the problem reached the level of crisis, given the “national hierarchy of needs.”
Other panelists were Ellie Bruecker, UW-Madison graduate student in the Department of Educational Leadership and Policy Analysis, and Brad O’Brien, GreenPath Financial Wellness financial education manager.
Eicher’s organization is a liberal advocacy group that has lobbied hard for state student loan refinancing, a measure blocked several times by Republican legislators. OWN also has done research on how student debt restricts borrowers’ spending power for both everyday expenses and long-term investments like mortgages.
The impact of debt is most severe on students who do not graduate and so don’t hold a credential to land a well-paying job, said Bruecker.
“There are people who get in trouble because they owe $2,000 that they can’t pay off because they don’t have the income,” she said. Refinancing loans for lower interest rates doesn’t solve their predicament.
It’s not just financial implications that are important, said O’Brien. One study of student loan borrowers found that 80 percent report the debt causes them significant amounts of stress, he said.
Exacerbating stress and magnifying the financial impact is the stigma associated with student debt, O’Brien said.
“People feel ashamed and kind of hide it,” he said. Borrowers may feel they have their loans in order if they are making payments or secured a deferment, he said. “But the rest of their financial picture is on a shoestring. One small change can throw the entire applecart over.”
Eicher said that overcoming the stigma associated with student debt helped put the issue on the national agenda.
“I think breaking the stigma has really moved the conversation in Wisconsin and nationally,” she said.
Financial education is so important, panelists agreed.
Students need more information about budgeting for college, as well as pay scales in their fields, Kindle said, adding that UW-Madison offers some courses.
“Many borrowers comes from households that do not budget, and then they’re trying to learn how while they are under financial duress,” he said.
As colleges and universities try to cope with the elimination of Perkins loans, a federal program that has been the main source of financial aid to low income students for decades, panelists stressed that financial aid programs need to be simpler.
“The complexity of the system contributes to many of the challenges for the average borrower,” O’Brien said. “A lot of people default on loans because they don’t know what to do.”
Some attempts to improve the system have unforeseen complications, panelists said. Earlier application for aid gives students and families time to plan, but may mean public institutions don’t yet know their financial aid budget, or even how much tuition will be.
Income-based repayment programs may ease the monthly debt burden on borrowers, but could have tax implications at the end of the repayment period.
Eicher thinks borrowers are so frustrated with growing debt and insufficient response that it will become a campaign issue in the 2020 election.
Others felt it was less likely.
“I’m concerned that with the state of the nation in general, candidates will be distracted by other things,” Kindle said.
O’Brien speculated it might take something like the mortgage loan crisis that precipitated a crash in the housing market to force reforms.
“I fear for student loans that what is going to happen before people start to take it seriously,” he said.