Covid-19 and the Student Loan Crisis

The current Covid-19 pandemic has significantly affected student loan repayment plans for the millions of graduates who have lost their jobs due to the ongoing crisis. In essence, college education in the US has always been costly and problematic, and the increasing student debt adds to the misery. While one can argue that the student loan crisis only affects graduates, its impact also cuts across other economy sectors. According to the Board of Governors of the Federal Reserve System (2020), the student loan debt stands at $1.67 trillion, with the figure estimated to rise as the pandemic continues to affect more people, jobs, and businesses across the country. Simultaneously, the student loan debt, over the years, has increased alongside tuition fees, leading to a costly college education. For instance, Hess (2020) notes that demand for education increased after the 2008 recession, translating to a 25% increase in cost for a four-year college degree and a subsequent 107% increase in student debt. Ultimately, the growing student loan debt and its impact on the economic parameters like homeownership and unemployment rates raises concern for quick action to the mounting problem. All this, viewed against a coronavirus-punctuated background, requires a calculated move to avert a looming economic impasse caused by the loan debt.

Covid-19 and the Looming Student Loan Crisis 

Dwindling Payment Prospects with The Novel Coronavirus 

For a long time, the skyrocketing student loan crisis has been ignored or poor policies implemented to avert the situation. However, with the novel coronavirus hitting hard on the economy, the looming student loan debt became much more conspicuous. According to Hess (2020), by February this year, the country entered into an economic recession, with more than 42 million Americans filing for unemployment in the subsequent months. The Covid-19 pandemic's impact was fast and intense, leaving most graduates and families with no prospects of repaying their student loans. The World Economic Forum estimates that roughly 55% of the loanees are recent graduates, each with an average loan balance of about $35,625 (Berkley & Letzing, 2019). Given the economic uncertainties due to the never-ending covid-19 pandemic, most of these loanees will face challenges offsetting even half of their loans by 2022.

The Student Debt Affects All Sectors of The Economy 

As earlier noted, the increasing student debt significantly impacts the different sectors of the economy, including housing and real estate, health, and other financial sectors. More specifically, the student debt impacts the mortgage sector in diverse ways. For instance, with every increasing loan debt, homeownership levels fall, creating a ripple across the economy. According to Nova (2020), recent statistics reveal that approximately 36% of college graduates aged between 21 and 35 fail to own houses due to student debts. Nova (2020) further reports that 21% and 26% of them have delayed marriages and families, respectively. With the ongoing Covid-19 pandemic affecting individuals, families, and institutions, the numbers are projected to worsen.

The Student Debt Implicates Health and Productivity 

Health is a significant component of the country's economy, and with ailing student debt on the rise, health provision becomes a challenge. In a study by the University of South Carolina, six out of ten college graduates with over $25,000 student loans reported increased stress levels, feelings of depression, cases of anxiety, and ill-health (White, 2015). Arguably, the coronavirus pandemic adds more strain to these young Americans, necessitating swift action to relieve the already mounting health and financial burdens on them.

The student debt is escalating uncontrollably 

Concerns have been raised over the increasing student loan debt. Statistics from the World Economic Forum indicate that the student loan debt has grown exponentially since the 2008 recession, registering a 6% increase annually (Berkley & Letzing, 2019). Further, Johnson (2019) acknowledges the student debt as part of a larger crisis, indicating that the accumulative debt will hit $2 trillion or more by 2021. The growth rate will reach 7% or higher. With the Covid-19 pandemic stalling economic growth and pulling the country down, these projections would undoubtedly increase exponentially, escalating the already high student debt.

Inadequate Data Means More Potential Implication 

There is little literature on the impact of student dropout and the student loan crisis. Most studies only capture graduates with ailing student loans, forgetting that there is a high number of student dropouts who also acquired loans to study. According to Barshay (2020), college dropouts do not have the necessary certificates and qualifications to secure jobs and repay their loans. As such, the debt ruins their lives and impacts the national budget. Further, Whistle (2019) adds that most college dropouts fail to repay their loans, despite having below average loan balances, due to their existing financial constraints. Since college dropout is part of the bigger unemployment crisis, only those with premium college degrees and jobs have profound means and potential to repay their loans. However, the ongoing Covid-19 pandemic further adds to their woes and overstretched financial struggles for college dropouts.

Trump’s waiver is ineffective 

President Donald Trump's cushion against the novel coronavirus on student loan repayment elicited mixed views from proponents and opponents alike. The president's waiver on loan repayment for a specific period is a short-term solution with negligible outcomes. According to Lieber (2020), a waiver on the loan interest has far-reaching benefits for most borrowers, especially those hit hard by the coronavirus. For instance, those who continue paying their loans during the waiver period will significantly reduce the overall loan balance once the waiver expires. Moreover, loans in the forbearance status, where repayment is paused due to financial hardships, do not accrue any interests due to the waiver (Lieber, 2020). However, the waiver does not shield all borrowers from the coronavirus contagion. For instance, the waiver does not favor those who took student loans from state agencies or private lending institutions like Sallie Mae (Lieber, 2020). Despite the temporary reprieve the waiver offers, there is much to discuss and analyze concerning its impact and outcomes once the waiver period lapses.

Key Points on the Primary Issue 

Financial Instability as The Biggest Barrier to Loan Repayment 

The current coronavirus pandemic has worsened the financial situation among many Americans, further exposing the financial intricacies surrounding the student loan repayment metrics. While student loans offset barriers to education, repayment of these loans brings about financial instability to borrowers. For instance, a graduate's loan can be deducted from their income, leaving less money to sustain other financial obligations. A report by Skjoldborg (2020) shows that a majority of the borrower participants were eager to repay their student loans, but other unexpected financial constraints limited their inability to make monthly payments. These revelations highlight the dire need for better loan repayment programs and policies to safeguard borrowers from financial instabilities. The novel coronavirus has compounded the situation, with many borrowers defaulting on their loans, adding to their woes.

Financial instability, especially among low-income earners, is severe and has a huge impact on student loan repayment. As policymakers rethink their strategies to reduce student loan debt, they must consider borrowers from low-income families or those constrained by low income. Most of these low-income borrowers default their loans as their financial obligations increase. According to Skjoldborg (2020), many of the borrowers cited having little information about income-driven plans that are put in place to help in loan repayment. While these plans can help structure an affordable loan repayment scheme based on a borrower's monthly income, they do not account for other aspects of their financial obligations.

Unfavorable Student Loan Policies 

Arguably, the student loan debt cannot be blamed on the loans, but rather ineffective policies and the government's inability to provide adequate information to students and their families. Ducoff (2019) notes that the government has not put adequate support structures to help these students and their families make smarter decisions concerning student loans and college education. Failed policies and programs under the federal government are doing little to promote financial literacy on student loans. While the government has taken other initiatives to educate students on substance abuse and its impact, it should do the same on student loans before enrolling in the program.

The Growing Interest Rate 

Having interest accrue on top of the principal amount is overwhelming and discouraging to borrowers. During periods of non-payment or income-driven payments that did not cover the required monthly deposit, the amount subject to interest increases, further increasing future interests. By contrast, graduates and college dropouts sit on opposite sides of the loan payment spectrum. While graduates who find good jobs pay their loans consistently, those with no jobs differ their monthly payments, accruing more interests with time. An unforeseen repercussion to the growing interest rate is frustration at the increasing balances (Skjoldborg, 2020). Besides, unaffordable payments and other financial constraints contribute to the growing interests.

Stakeholder Interpretations of Key Issue 

The student loan crisis encompasses many stakeholders who can have a say in fixing the looming crisis. With over 42 million Americans on the debt list, one stakeholder group's solution poses more challenges for another group. The student loan borrowers form the biggest stakeholder group in the crisis. According to Healey (2019), education is a significant aspect of human life, and parents want their children to enroll in better schools regardless of the high tuition fees. As such, the borrower age continues to increase as parents take student loans for their children. However, payment of these loans remains a challenge for both the parents and students. Despite their large number, student loan borrowers have limited influence in contributing to the looming student loan crisis. They continue to take massive loans without assessing the implications these loans bring to their finances and the country's economy at large.

As another stakeholder in the student loan crisis, private lenders only care about recovering their money, and all the interests accrued. Some lenders are socially conscious and provide relief programs to borrowers who find it difficult to manage their loan repayment obligations; others do not care about ethical practices. These private lenders are businesses that are after making profits. Jaworski, B., & Ward (2019) acknowledge that capping student loans from private lenders will not resolve the increasing student debt. Rather, reviewing the high tuition fees will be a fundamental step in curbing the ever-increasing student debt. Lenders need to make profits, and loan forgiveness programs do not favor their business models.

The federal government, another stakeholder in the student loan debt, is not doing enough to curb the looming crisis. Ineffective policies and programs have worsened the situation, with proposals to reduce the debt crisis receiving criticisms from opponents and other stakeholders. Being the majority stakeholder in issuing student loans, the federal government should be more cautious of the debt's impact on the economy. Drawing lessons from the 2008 financial crisis, Healey (2019) asserts the risk of another recession due to the debt's impact on the US economy. Policy proposals create more challenges and only resolve one negative effect of the debt. Overall, resolving every aspect of the debt crisis mandates the federal government to create policies that encompass equity, simplicity, and meaningful relief. Aligning the policies against these elements will help the federal government implement effective solutions to resolve the current student loan debt issue.

The Proposed Solution 

Undoubtedly, solving the student loan crisis mandates implementing solutions that would consider the problem's diverse nature. Acknowledging the root cause of the problem and factoring in the effects of the novel coronavirus on individuals and the economy will form the first step to creating better strategies, resources, and solutions. The rising cost of college education, compounded by economic uncertainties, such as the coronavirus pandemic, play a significant role in the current inflation rates and widening economic and social disparities. In essence, the proposed solution must recognize the unique problems the coronavirus pandemic poses to the debtors. This section suggests a raft of measures that will formulate a comprehensive and inclusive solution to the student loan crisis amid a devastating coronavirus pandemic. The proposed solution highlights the following measures:

Curb the rising need for student loans through controlling tuition fees in public colleges and universities. The move will encourage people to pay for their education through personal savings. At the same time, regulate private institutions’ tuition charges.

Increase grants to low-income students as well as facilitate well-evaluated waivers on tuition. Introducing low-cost degree programs to the minority communities will also reduce student loan borrowing.

Reduce the student loan interest that has overpowered many borrowers. Indeed, a 0% interest rate would allow borrowers to make adequate and timely payments on their loans without overstretching their resources. As Roseth (2019) notes, student loan debts drag the economy, leading to high unemployment rates. Canceling out these debts or doing away with high-interest rates will stimulate the economy substantially.

Implement a special package for coronavirus victims going through financial hardships, such as a package allowing students who lost their parents to the pandemic to access interest-free loans. In light of the pandemic, implementing loan forgiveness programs for the pandemic victims will also reduce the loan repayment burden.

The proposed solution also considers the existing racial and ethnic disparities surrounding education and student loans. The measures will ensure they mitigate such disparities, further reducing the student loan crisis. Drawing a conclusion from Miller (2019), defaulter rates among African Americans remain high regardless of higher learning institutions. Moreover, the situation is worse for dropouts and debts. Although a significant number of borrowers continue repaying their loans, most are behind schedule due to the harsh financial conditions.

Recommendations 

This paper supports Senator Elizabeth Warren's Student Loan Fairness Act as a recommendation for the current student loan crisis amid the coronavirus pandemic. According to Roseth (2019), the Senator's proposal offers the following reprieve to borrowers:

Capping the loan interest rate to match the federal reserve rate. Since student loan borrowers pay high-interest rates than what banks currently offer, the caps would reduce the debt gap and reduce pressure on the loan payment.

The Act would allow borrowers to convert their private loans to federal loans through an application process. The option will force private lenders to put in place flexible repayment plans and programs to match those in the federal programs.

Lastly, the Act would also offer forgiveness to employees in the public sector after 60 months of loan repayment.

Conclusion 

The current student loan crisis is a never-ending problem that has escalated due to the ongoing Coivd-19 pandemic. With a $1.67 trillion student loan debt looming, many economic sectors are reeling from its impact. Much has been done over the years to reduce the debt gap, but none of the efforts have been successful. Statistics aside, this paper has proposed a few recommendations geared towards reducing the student loan debt. Measures on reducing the current interest rates, limiting higher education tuition fees, increasing grants and low-cost degrees to the marginalized communities, and developing special packages to cushion victims of the coronavirus pandemic are the measures incorporated in the proposed solution. Further, the paper recommends the implementation of Senator Elizabeth Warren's Student Loan Fairness Act to reduce the student debt burden on Americans. Ultimately, these recommendations are short-term solutions. The Trump administration ought to fasten the belt around the student loan debt crisis amid the coronavirus pandemic before the debt gets out of hand.

References 

Barshay, J. (2020).  Federal data shows 3.9 million students dropped out of college with debt in 2015 and 2016 . The Hechinger Report.  https://hechingerreport.org/federal-data-shows-3-9-million-students-dropped-college-debt-2015-2016/ 

Berkley, A., & Letzing, J. (2019).  The US student debt crisis explained . World Economic Forum.  https://www.weforum.org/agenda/2019/09/us-student-debt-crisis-explained-america-education/ 

Board of Governors of the Federal Reserve System. (2020).  Student loans owned and securitized, outstanding . Federal Reserve Economic Data | FRED | St. Louis Fed.  https://fred.stlouisfed.org/series/SLOAS 

Ducoff, N. (2019).  Students and their families need support systems before they're saddled with college debt . CNBC.  https://www.cnbc.com/2019/05/16/students-families-need-support-systems-to-handle-college-debt-crisis.html 

Healey, P. B. (2019).  We should all be concerned about the student debt crisis . CNBC.  https://www.cnbc.com/2019/11/04/we-should-all-be-concerned-about-the-student-debt-crisis.html 

Hess, A. (2020).  How student debt became a $1.6 trillion crisis . CNBC.  https://www.cnbc.com/2020/06/12/how-student-debt-became-a-1point6-trillion-crisis.html 

Jaworski, B., & Ward, K. M. (2019).  Stakeholders Debate Public Policy Issues Surrounding Consumer Debt in America . Holland & Knight.  https://www.hklaw.com/en/insights/publications/2019/12/stakeholders-debate-public-policy-issues-surrounding-consumer-debt 

Johnson, D. (2019).  What will it take to solve the student loan crisis?  Harvard Business Review.  https://hbr.org/2019/09/what-will-it-take-to-solve-the-student-loan-crisis 

Lieber, R. (2020).  Trump’s student loan interest waiver isn’t what you may think . The New York Times - Breaking News, World News & Multimedia.  https://www.nytimes.com/2020/03/14/business/student-loans-coronavirus-trump.html?searchResultPosition=1 

Miller, B. (2019).  The continued student loan crisis for Black borrowers . Center for American Progress.  https://www.americanprogress.org/issues/education-postsecondary/reports/2019/12/02/477929/continued-student-loan-crisis-black-borrowers/ 

Nova, A. (2020).  How to buy a house despite student debt . CNBC.  https://www.cnbc.com/2020/01/31/have-student-debt-you-can-still-get-a-mortgage.html 

Roseth, B. (2019).  Student debt crisis and possible solutions . UW Retirement Association.  https://www.washington.edu/uwra/2019/12/13/student-debt-crisis-and-possible-solutions/ 

Skjoldborg, R. (2020).  Borrowers discuss the challenges of student loan repayment . The Pew Charitable Trusts | The Pew Charitable Trusts.  https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment 

Whistle, W. (2019).  A look at millennial student debt . Forbes.  https://www.forbes.com/sites/wesleywhistle/2019/10/03/a-look-at-millennial-student-debt/#4c45dd7c2437