Much like fixing the problems in the healthcare industry, solving the student loan crisis is an incredibly difficult undertaking.
Americans owe approximately $1.5 trillion on their student loans and the price of a college education continues to balloon. Solving a problem of this magnitude is not a simple fix.
In our quest to seek out the best ideas aimed at resolving the student debt crisis, we must first take a look at the various stakeholders in this issue. It goes far beyond student loan borrowers and lenders. To craft a cure, we must look at all the parties involved as well as their motives and influence. Once we have a better understanding of the players, we will be able to see how the pieces of the puzzle fit together.
Student Loan Borrowers
The most obvious stakeholder in solving the student loan crisis is the people saddled with student debt.
With over 40 million Americans dealing with student debt it is a very large group. It is also worth noting that the average borrower age continues to increase due to parental borrowing for children, as well as larger loan balances to pay off.
Despite the large number of student loan borrowers, their influence in Washington seems limited. As a group, their financial resources for lobbying efforts are minimal, and student loan borrowers have not shown up at the polls in sufficient numbers to be a significant factor in many elections.
Future College Students
Former students and future students are dramatically different groups.
For future students, and their parents, major concerns include college access and affordability. Existing borrowers, especially those done with school, are only worried about eliminating debt.
One example of these divergent interests would be the bankruptcy proposal. Many consumer advocates think that restoring bankruptcy protections to student loans would increase lender responsibility, and force them to work with borrowers who are struggling.
For existing borrowers, adding bankruptcy protections would be a huge win. Even though the majority wouldn’t need bankruptcy, having it as a possibility would be a major asset.
For future students, adding bankruptcy could be a major setback. Without the permanence of student debt, many lenders may choose to raise interest rates, and be more strict about requiring cosigners. This shift could make paying for college more difficult, and limit the ability for some to attend.
One of the major players in the student loan world is the schools themselves. This includes everyone from the Ivy League schools to the for-profits.
From the schools perspective, they want a steady stream of students and an adequate supply of student loans to allow them to continue to raise prices. The schools will also want to avoid student crisis solutions that could leave educational institutions responsible for unpaid debt.
Colleges and Universities carry great influence in our society as thought leaders and large employers. Many for-profit schools also have very well funded lobbying efforts.
The lenders obviously want their money back plus interest. While some may be more socially conscious and ethical than others, at the end of the day they are all businesses out for profit.
Most lenders will be opposed to increasing student loan consumer protections, and many have significant influence in Washington due to well paid lobbyists and campaign contributions.
The lender who has issued the most student loans is actually the federal government.
Taxpayers, at least those without student loans, have a couple major concerns with student debt.
First, they want their money back. Many will see the value of subsidizing education for a smarter workforce, but the less federal spending, the better.
Second, taxpayers want a strong economy. If student loans are dragging down the economy, this is a problem for the average taxpayer.
Finding a Solution
Putting together a plan that benefits all of the interested parties will be difficult. A fix for one group often represents a major challenge for another.
Next week we will take a look at some of the proposed student loan solutions and examine how they impact our various stakeholders.