Big Debt, Big Deal

Minnesota is living under a $27 billion mountain of student loan debt.1 A student graduating in Minnesota today has an average of $31,000 in debt.2 Whether we realize it or not, it is affecting both individuals and the broader community. The challenge of student loan debt in Minnesota is explored in a new North Star report entitled The Debt Dilemma: Student Loan Debt and the Minnesota Economy.

Higher education in Minnesota developed under a set of ideals about shared benefits and shared responsibilities. Minnesota State and the University of Minnesota were developed to ensure that Minnesotans across a broad range of geographies and backgrounds had access to professional, vocational, and liberal arts education.3 The state benefited by having one of the most qualified, most educated workforces in the nation.

Like the mortgage crisis that sparked the great recession, it is easy to think about student debt as something that rises from individual bad choices. Digging deeper, hower, a series of decisions by both the private and public sector stacked the deck against students who want to pursue higher education. Jobs that once required only a high school diploma now require credentials from a higher education institution and investment in higher education has failed to keep pace with inflation.4 The economics of higher education has changed so much that the experience of student debt is completely unrecognizable from thirty years ago when a summer job and work-study was enough to keep debt levels at manageable levels.

Instead of addressing the increasing cost of higher education, in response to higher costs borrowing limits were increased and payment plans created to extended payment over 20, 25 or 30 years.5 Programs created as release valves like the Public Interest Loan Forgiveness program have proven to be unreliable due to arcane programs rules and requirements.6 While state-level programs are more accessible and reliable, they are very limited in scope.7

Student loan debt is delaying homeownership, suppressing business development, and limiting retirement savings.8 It undermines efforts to create a more prosperous and more equitable Minnesota. While higher education is a gateway to economic mobility, students of color have higher student loan debt and lower completion rates, creating deeper disparities.9

While in our current economy student debt is a challenge that is holding people back, experts are pointing to a looming student debt crisis in the event of a recession.10 Student loan debt cannot be discharged in bankruptcy and people cannot walk away from it or sell it. The burden of student debt will weigh particularly heavily on students who did not complete higher education but still accrued debt.

This is not an unsolvable problem, but there is a cost. Student loan debt forgiveness, decreasing the cost of higher education, creating more support returning students who want to complete their degrees, and robust monitoring of for-profit higher education institutions can all help address parts of the student loan debt challenge.

For the full report click here 

 

 

1State Level Household Debt Statistics 2003-2017, Federal Reserve Bank of New York, February, 2018
2Shaun Williams-Wyche, Minnesota Office of Higher Education, Cumulative Median Student Loan Debt in Minnesota, 2016, https://www.ohe.state.mn.us/pdf/CumulativeStudentLoanDebtReport.pdf
3Oliver C. Carmichael, The Roots of Higher Education in Minnesota, Minnesota History, Autumn, 1954, http://collections.mnhs.org/MNHistoryMagazine/articles/34/v34i03p090-095.pdf.
4Julie Margetta Morgan and Marshal Steinbaum, The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality, The Roosevelt Institute, http://rooseveltinstitute.org/wp-content/uploads/2018/10/The-Student-Debt-Crisis-and-Labor-Market-Credentialization_FINAL.pdf
5https://studentaid.ed.gov/sa/sites/default/files/repaying-your-loans.pdf
6Public Service Loan Forgiveness Data, U.S. Department of Education, https://studentaid.ed.gov/sa/about/data-center/student/loan-forgiveness/pslf-data
7Minnesota’s Student Loan Forgiveness and Repayment Assistance Programs, Research Department
Minnesota House of Representatives, https://www.house.leg.state.mn.us/hrd/pubs/stloanfrg.pdf
8Mezza, Alvaro A., Daniel R. Ringo, Shane M. Sherlund, and Kamila Sommer (2016). “Student Loans and Homeownership,” Finance and Economics Discussion Series 2016-010. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2016.010r1, Brent W. Ambrose, Larry Cordell, and Shuwei Ma, The Impact of Student Loan Debt on Small Business Formation, Research Department, Federal Reserve Bank of Philadelphia, https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2015/wp15-26.pdf and Matthew S. Rutledge, Geoffrey T. Sanzenbacher, and Francis M. Vitagliano, “Do Young Adults with Student Debt Save Less for Retirement”, Center for Retirement Research at Boston College, June 2018, Number 18-13, http://crr.bc.edu/wp-content/uploads/2018/06/IB_18-13.pdf
9Cumulative Median Student Loan Debt in Minnesota 2016, Minnesota Office of Higher Education, https://www.ohe.state.mn.us/pdf/CumulativeStudentLoanDebtReport.pdf
10Judith Scott-Clayton, “The looming student loan default crisis is worse than we thought”, Economic Studies at Brookings, Evidence Speaks Reports, Vol 2, #34 January 10, 2018, https://www.brookings.edu/wp-content/uploads/2018/01/scott-clayton-report.pdf