Federal Student Loan Effectiveness: Part 1

Should the federal student loan system be modified? Can its accessibility and effectiveness be improved? 

                             
Student loan debt has recently transformed into a significant issue in American politics. Some 43 million Americans have a total of $1.5 trillion in student loan debt, but low-income people and minorities are struggling the most. The average person who defaults on their student debt lives in an area with a median income of $50,000, while the one who doesn’t default resides in an area with a median income of $60,000. Those who default are more likely to live in a black or Hispanic area, and first-generation college students also have higher rates of default than average. Today, a college degree is almost universally thought to be correlated to a person’s success and income in the future. Therefore, it is highly beneficial for people with lower socioeconomic status to attend college. But with the difficulties facing them, this goal is extremely difficult or impossible to accomplish. Furthermore, the average person with outstanding student loan debt has a lower net worth, a lower income in the years soon after graduating college, and less retirement savings than the average person who is debt-free. In order to allow all people to have a chance at an education and well-paying, meaningful career, instead of being saddled by debt, there need to be significant policy changes in the way student loan debt is handled by the United States government.

The verification of the Free Application for Federal Student Aid (FAFSA) form, which all students applying for federal loans must fill out, is time-consuming and burdensome to students, financial aid administrators, and college access professionals alike. Most students selected for verification are eligible to receive a Pell grant, meaning they display exceptional financial need. There are many documents to fill out when a student has been selected for verification, in which these low-income students are repeatedly asked to prove that they are poor. The process can be extremely difficult to understand for students without resources to support them, and nearly impossible without parents who are engaged and dedicated to completing the forms. Unfortunately, many of those who have to go through verification are extremely low-income, have English as a second language, are first-generation college students, or some combination of the three. And even once the whole ordeal is finished, some students don’t receive their money until the spring semester, which prevents them from buying books and other resources first semester, and in some cases forces them to drop out of their classes. This entire process dissuades many low-income students from attending and graduating from college, which in turn will restrict their options in the future and reduce their likelihood of achieving upward social mobility. Simplifying this process, in ways such as better informing these students of the necessary procedures and automatically collecting as much data as possible from the IRS, would aid these students and allow them a better opportunity at a college education.

There have been a number of proposals to change the Pell grant program, which consists of loans that do not have to be paid back and are given to exceptionally needy students. Currently 7.5 million students use Pell grants, most of whom have incomes below $40,000. This includes nearly 60% of black college students and 50% of Hispanics. In 2017, Congress members proposed a bill to strengthen the program that suggested permanently indexing the maximum grant to inflation, and increasing the grant’s purchasing power. The maximum Pell grant in 2019-20 covers the lowest percentage of overall college costs in the program’s history, because it is not adjusted accordingly to drastically increasing college costs or inflation. The $6,195 is only around 26% of an average 4-year public university’s tuition of $23,890. (link) Additionally, the automatic inflation adjustment is no longer in effect, as it expired after the 2017-18 school year. Restoring the maximum Pell grant amount to 1980s levels (around half of tuition at a 4-year public university) and continuing to modify it based on inflation in future years would provide crucial assistance to those who need it most.

Both political parties have suggested a simplified system for federal grants that involves income-driven repayment (IDR). IDR plans allow those with relatively low incomes to pay less every month, so they are not overly burdened by student loan debt at any one time. For the upcoming 2019-20 school year, there are 4 different types of IDR plans in place, but the current president’s 2020 budget proposal would streamline the system so there is only one. Democratic candidates have also emphasized the importance of IDR. A more controversial issue across party lines is the Public Service Loan Forgiveness (PSLF) program, which is designed to encourage recent college graduates to work in careers that are beneficial to society but do not pay well. These professions include teaching, government, firefighting, etc., which are vital to the well-being of the country and individual communities. Essentially, the Department of Education is rewarding those who sacrifice a higher-paying job for one with community benefits. Although the idea may seem like a good one, it has not been very efficient. Since March 2017, when the first people became eligible to receive forgiveness, 98.8% of applicants have been rejected. The program has many requirements that are can be confusing and inconvenient, so many people do not realize they do not qualify for forgiveness. The Republican budget proposal for the upcoming year would eliminate the entire program, while a majority of Democratic front-runners believe it should be expanded to more borrowers and/or drastically simplified. In the coming years, it is likely that a higher percentage of people will figure out the PSLF requirements and be accepted to have their loans forgiven by the Department of Education, so the program may prove to be more useful than it currently is. If not, however, eliminating the program may be the most logical course of action.

Student loan debt is a significant burden on a large portion of America’s adult population. It hits poor and minority young adults the hardest, lowering their chances of upward social mobility and instead forcing them to spend precious money on an education that should be equally accessible for everybody. A lot of problems with the way student loan is handled are caused because the system is too complicated to fully understand. Therefore, changes to simplify the system, better inform incoming college students, and expand the most basic grant program would go a long way towards providing everyone with accurate, relevant information and enough money to succeed in college and beyond. This should increase social mobility and narrow the income inequality gap between people from low and high socioeconomic backgrounds.

Works Cited

Ahlman, Lindsay, et al. "On the Sidelines of Simplification: Stories of
     Navigating the FAFSA Verification Process." The Institute for College
     Access & Success, Nov. 2016, ticas.org/files/pub_files/
     on_the_sidelines_of_simplification.pdf. Accessed 11 Aug. 2019.

"College Costs: FAQs." College Board, bigfuture.collegeboard.org/pay-for-college/
     college-costs/college-costs-faqs. Accessed 10 Aug. 2019.

"Federal Pell Grants." Federal Student Aid, studentaid.ed.gov/sa/types/
     grants-scholarships/pell. Accessed 5 Aug. 2019.

Ingraham, Christopher. "7 ways $1.6 trillion in student loan debt affects the

     U.S. economy." The Washington Post, 25 June 2019, www.washingtonpost.com/
     business/2019/06/25/heres-what-trillion-student-loan-debt-is-doing-us-economy/
     ?noredirect=on. Accessed 6 Aug. 2019.

Nykiel, Teddy. "Public Service Loan Forgiveness: What It Is, How It Works."
     Nerdwallet, 1 May 2019, www.nerdwallet.com/blog/loans/student-loans/
     public-service-loan-forgiveness/. Accessed 6 Aug. 2019.

"Pell Grants Help Keep College Affordable for Millions of Americans." The
     Institute for College Access & Success, 18 Sept. 2019, ticas.org/wp-content/
     uploads/2018/07/Overall-Pell-one-pager.pdf. Accessed 1 Oct. 2019.