Napala Pratini Essay PDF

Two perspectives on the student loan debt crisis
There are two sides to the student debt story.
The first is what makes news headlines — the story told by numbers — and it’s not a
forgiving one.
The most recent measure of cumulative debt indicates that Americans have racked up
$1.4 trillion in student loans, billions more than U.S. consumers owe to credit card
companies. The amount of debt held by the average graduate nearly doubled in the 10-
year period from 2005-2015 (see Figure 1), and the upward trend continued in 2016. In
the early 1990’s, less than half of students took out loans to finance their education; This
number has since increased to more than 70 percent, leaving 44.2 million Americans with
student debt — nearly 15 percent of the U.S. population.
After graduating, Americans are held back by their student loans, one survey finding that
nearly a third of graduates with debt struggle to buy daily necessities due to loans, and
two-thirds are hampered in their ability to make large purchases. It’s not just purchasing
power that’s affected by loan debt; The same survey found many students put off saving
for retirement, getting married, and starting a business or family due to debt.
The other side of the student debt story is qualitative, and a lot more human. It has to do
with the thought process and decision-making that goes into taking out a student loan,
and I’ve witnessed it both as a borrower myself and during my time working for a
consumer lending start-up that refinances student loans — and therefore sees borrowers
who are already in repayment and have the benefit of hindsight.
This story starts with the perception in the United States that debt is normal. With eight in
10 Americans in some sort of debt, it comes as no surprise that rising generations see
debt as less of a last resort, and more a fact of life. So when the high sticker price (due to
administrative overhead, funding cuts, and a plethora of other factors) of attending
university in the U.S. becomes a reality, the obvious solution is to take out a loan — or a
few — because, after all, an undergraduate degree increases lifetime earnings by an
average of 66 percent.
As a result of debt being “normal,” however, too many borrowers don’t do their
homework, blindly signing up to repay thousands of dollars without fully understanding
the implications of doing so. They don’t calculate (nor do the lenders make obvious) the
total amount of interest that will accumulate, let alone think critically about how monthly
payments will impact their ability to live comfortably. Students taking out private loans
often fail to rate shop, signing up with the first lender they find, regardless of interest
rate. And very few students know which career path they’ll end up on (and therefore how
much they’ll earn): Even those who think they do often experience a change of heart,
with the large majority of students changing majors at least once during their studies.
Reality hits hard once loans enter repayment. Many graduates take jobs outside of their
field of study, stick with jobs they hate, and delay or forego graduate school in order to
meet monthly payments. On the flip side, I personally know a number of college
graduates who work in jobs that don’t require a college degree, meaning they’ve taken on
debt only to hold the same job they could have gotten out of high school. Even when
loans are in repayment, too many borrowers still don’t understand the basics of how a
loan works, nor are they aware of options like income-based repayment and forbearance.
The numbers story points to systemic changes that could and, in many cases, should be
made — but any one of which would require a massive overhaul of existing
infrastructure. Opinions abound when you start talking about how to fix the exorbitantly
priced higher education system in the U.S., the blame being placed on everything from
administrative overhead to athletics to lack of loan repayment options. The second story,
on the other hand, points to a more nuanced observation and a less radical solution —
namely, that borrowers should be better educated about the reality of student loans in
order to make more empowered decisions, both in taking out loans and in paying them
back.
The burden of this education rests on the lender and the borrower alike. Lenders have a
lot of room for improvement when it comes to explicitly outlining loan terms. For their
part, borrowers undertake a huge responsibility in taking out a loan, and should therefore
educate themselves accordingly — an important step that is often overlooked. This isn’t
to say that students shouldn’t take out loans to fund their education, as paying for college
outright is far out of reach for most Americans. Rather, borrowers need to better-prepare
themselves to pay them off, and a significant part of being ready to do so is fully
understanding how loans work and the legal obligations they come along with.
I therefore disagree that forgiving student loan debt for borrowers who declare
bankruptcy will solve any problems with our educational financing system. From the
financial perspective, forgiving student loan debt would decrease the amount of federal
funding available to public schools and further incentivize colleges to raise prices. On the
student side (and from the perspective of a graduate who took out and repaid student
loans), I feel strongly that such an option would further absolve borrowers of the
responsibility they should feel in borrowing significant amounts of money, allowing them
to live in the ignorance that debt and its consequences are a normal part of life. The
option to declare bankruptcy is not a long-term fix to the problems we face; While many
of the best solutions will take years of deliberation and collaboration between multiple
stakeholders, students need to empower themselves today by becoming educated about
the financial decisions that will affect their lives decades down the road.
Figure 1:
Source: Mark Kantrowitz, Who Gradates with Exc

Excessive
ssive Student Loan Debt?, Dec. 14,
2015 http://www.studentaidpolicy.com/excessive
http://www.studentaidpolicy.com/excessive-debt/Excessive-Debt-at-Graduation.pdf
Graduation.pdf

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Two perspectives on the student loan debt crisis

There are two sides to the student debt story.

Source: Mark Kantrowitz, Who Gradates with Exc

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