About a year ago, news broke that student loan debt surpassed the trillion dollar mark. While this number is discouraging, it hardly seems surprising. Paying for college has always been one of the many things parents worry about, and, although it is receiving more attention now, student debt has been a problem for years.
In fact, according to a working paper from the Federal Reserve Bank of Kansas City, from 2005 to 2012, student loan debt increased by 13.9 percent annually, but only as it has hit the trillion dollar mark have many people begun to appreciate the severity of the student debt crisis. For many students, it’s hard to complete a post-secondary degree program unscathed by student debt. About 60 percent of current students take out loans, while about 37 million graduates have outstanding student loans, according to American Student Assistance.
This problem is not an easy one to solve, especially because its causes are convoluted, varying from state budget cuts to higher education to the collapse of household incomes during the recession. This issue is further complicated by dynamics between government supported loans that exceed $850 billion, and the $150 billion private loan marketplace with different rules, interest rates and access levels. No wonder consumers are confused and frustrated with a system that offers such as a diversity of loan programs including nine federal, 605 state, 16 military government offerings and hundreds of private loan alternatives.
As hopeless as this picture may seem, there is some early light at the end of the student debt tunnel. A 360 degree approach to attacking the problem is starting to gain some traction as gradually government, educational institutions, financial providers, entrepreneurs, employers and even students themselves are taking steps to better address the challenge. To understand these solutions, however, it’s important to first get a more in-depth look at the student debt crisis.
According to a U.S. Senate report, 13 percent of community college students take out loans. In comparison, 48 percent of public nonprofit graduates take out loans, while 57 percent of graduates at private nonprofits borrow money for college. Graduates of private, for-profit institutions are the largest group of borrowers with 96 percent and are now being held to high standards on acceptable default rates.
Students may look at these percentages and wonder why their education is so expensive to begin with. For students at public colleges and universities, state cuts to higher education made tuition rise, forcing them to borrow more money to cover their operating costs. Rising unemployment and the collapse of household income during the recession only escalated the problem, as parents and students were forced to borrow more to keep up with rising costs. Unfortunately, some of these families also failed to understand the financial aid options available to them, including the types of loans and aid they could apply for and the variety of ways they could pay back their debts.
As this problem has escalated, it has generated buzz within the media and the higher education sector, and it has forced education leaders to think of creative solutions. The ‘Reimagining Aid Design and Delivery’ project, sponsored by the Bill & Melinda Gates Foundation, offered policy recommendations including greater simplification of the student loan process, which would involve folding all existing loans into one federal loan program, and automatic income-based loan repayment options. The recommendations also called for improvement in the federal government’s method for collecting student loan data.
These may represent long-term solutions, but schools like Penn Foster have made it a point of taking action now to eliminate student debt. At Penn Foster, students pay small monthly fees for their degree programs, rather than large lump tuition sums. This pay-as-you-go system allows students to graduate debt-free, entering the workforce without the burden of student debt.
Technology is also playing an important part in changing the student debt landscape. For example, Angel Ed Inc., a Boston-based nonprofit crowdfunding community, is helping students finance their education debt-free while fostering mentoring and hiring relationships between individual and corporate donors and the students they fund. SoFi and CommonBond are offering lending solutions that attempt to give students access to lower loan rates than the federal standards. These organizations are able to offer lower loan interest rates by considering an individual’s future credit profile, which improves significantly once a student has graduated, attained employment and made the first handful of payments on loan balances.
There are also new tools and services to aid consumers, ranging from personalized financial aid consulting to free platforms for managing student loan portfolios. Student Aid Services helps families make sense of the wide variety of student loan programs available and better optimize value during a college career and beyond. Free student loan management tools like Tuition.io and Student Loan Hero are also gaining in popularity. These loan management tools allow students to view and manage their portfolio of student loans on one single dashboard, and in the case of Student Loan Hero, provide repayment suggestions.
All of these dynamics and emerging solutions converge to suggest a tipping point has arrived. Solutions such as pay-as-you-go degrees and crowdfunded education seem like out-of-the-box approaches to solving the student debt problem. But, sometimes these unconventional solutions are exactly what is needed to solve a problem as vast as the one our nation’s students are facing.
These solutions represent the idea that students who want to pursue higher education do not need to resign themselves to crippling student loan debt. There are ways to avoid, or at least reduce, this debt, and, by working together, we can solve this trillion dollar problem by continuing to come up with creative solutions like these. It will take time, but it will all be worth it if it means we can re-engineer our society into a place where higher education lifts students up rather than weighing them down with debt.
Frank Britt is the CEO of Penn Foster
