In honor of Financial Literacy Month, it’s worth taking a moment to consider one of the biggest financial challenges facing Americans of all generations — their student loan debt.
For those who may not be familiar with the student loan process, there are two loan types that students and their parents can explore to pay for a college education: federal student loans (public) and private student loans (issued by a bank, for example). You can read more about this at studentaid.gov. The Federal Reserve calculates that Americans owe roughly $1.74 trillion in student loan debt between both public and private loans.
Congress actually granted presidential authority to modify loan terms in a 2003 bill known as the HEROES Act. This is the piece of legislation that gave then-President Trump the authority to place all federal loans in deferment during the COVID-19 pandemic beginning March 20, 2020. No borrowers were required make payments of any kind for a period of 60 days. Ultimately, this relief was extended by both the Trump and Biden administrations through October 2023.
However, there is talk of providing yet more federal student loan relief, this time in the form of forgiving accrued interest. The most recent proposal put forth on Monday would forgive up to $20,000 per person by releasing them from the interest obligations associated with their loans.
Federal student loans are “public” because they are funded by tax dollars. So, if a federal student loan is forgiven, that is tax revenue that will never be recouped. In my dictionary, that’s called theft.
I’ll even take this a step further. Financial expert Dave Ramsey often tells his radio and podcast listeners that “Debt is the thief of your future.” When we literally steal from ourselves, and allow our children to steal from their own futures, this incestuous cycle of robbery perpetuates itself for decades. In fact, according to the US Department of Education, $109.77 billion of federal student loan debt in America is held by individuals aged 62 or older. Why are we doing this to ourselves?
At least the most recent proposal aims to address only the ballooning interest as opposed to the loan principle — an approach more difficult to argue with, to be sure. However, interest is applied to a loan to account for inflation. The longer a loan is outstanding, the less value those dollars have over time. It’s the same reason why we have interest rates for every kind of financing, whether it’s a personal loan or a mortgage. So, during America’s highest period of rising inflation in a generation, we’re going to signal to markets that we have no intention of recouping some of the losses?
Now what does any of this have to do with North Carolina?
To begin with, the whole idea of voluntary taxation in a representative democracy actually came from the John Locke Foundation’s namesake in his Second Treatise, published in 1689. You can read more about John Locke’s relationship with North Carolina here.
As of Sept. 30, 2023, studentaid.gov reports that just over 1.36 million public student loan borrowers reside in North Carolina and owe a combined total of $51.1 billion. When you look at the raw data (i.e. not accounting for population percentages), North Carolina residents hold the 10th largest amount of federal student loan debt.
It is widely researched and reported that the increased access to credit over the last 15-20 years has precipitated a rise in college tuition. The National College Board released a study in 2021 that examined this precise challenge. In other words, when we’re more willing to finance higher education, colleges and universities are incentivized to find reasons to accept more students at higher costs to generate more revenue to fund more programs and increase salaries, and the cycle continues. I don’t mean to say there’s some vast conspiracy at hand. In fact, I’ve worked in both college admissions and fundraising, and the opposite is probably true. This is simply an outcome of the market laws of supply and demand.
Before you ask, yes, I had about $22,000 of federal student loans and paid it off in just under four years. How did I do it? I worked, had help from family, and I made calculated choices that directly impacted my ability to pay my debt. I studied abroad in the summer because the programs were cheaper. I didn’t have a car for the majority of college, and I took advantage of scholarships (which meant my grades were paramount). For graduate school I worked for the university as a full-time employee to take advantage of a limited tuition benefit. It took me longer to graduate, but it didn’t affect my income and I avoided additional debt. I did not make payments while the loans were in deferment during graduate school, which I wholly regret, but it was a lesson learned the hard way.
My parents get a shout-out here because they made it very clear that they believed they “owed [me] an education, but not this education.” Herein lies the crux of the issue. Adults take responsibility for their actions, and I am continually baffled by how seldomly we actually hold people to account in this country. We owe it to ourselves and to our neighbors to simply make better choices.
There are a number of ways you can potentially take advantage of existing student loan forgiveness programs outlined here for those working in the public sector. If you are personally struggling to pay down your student loan debt (or any other debt, for that matter), I highly encourage you to take a look at Dave Ramsey’s Financial Peace University.
Ultimately, we set people up to fail when we loan them money they can’t repay to get college degrees that don’t prepare them for jobs with the kind of income they’ll need to service the debt. Anyone can save for college through an ESA or a 529 plan. And for pity’s sake, have a conversation with your student, now. Don’t blindly allow the young adults in your life to sign up for a debt burden they don’t fully comprehend.