Student Loans and the Problem of Generational Debt

In today’s economy, two out of every five student loan borrowers are likely to default on their loans. Americans owe over 1.48 trillion dollars in student loan debt - more than double the amount of national credit card debt. Recent graduates have long served as the face of the student debt crisis, taking out more debt than any generation before them. Unfortunately, our current associations have done very little to capture the economic and social effects this phenomenon has had on students’ families and society as a whole.

Tuition costs have risen exponentially over the last 20 years. As the sticker price for college has increased, many states have failed to keep up with demands for financial aid that have historically kept education affordable. As a result, many students need to take out some combination of public and private loans to pay for their education. When these students graduate and begin making payments on their debt, they are hit with a one-two punch. In addition to having to now make monthly loan payments, many are faced with a lack of well-paid entry-level jobs, causing many recent graduates to default on their loans and fall further into debt.

For many students and graduates across the country, reaching out for financial support from family or friends may not be an option. For those who do have parents, grandparents, or guardians willing and able to assist, it’s easy for families to fall into a generational debt cycle where the burden of education loan repayment touches everyone.

More than ever before, older Americans are co-signing loans, putting debt on credit cards, taking out equity loans, and diverting retirement savings to pay for their child or grandchild’s educational costs. For many, offering to lessen the financial burden of their family members effectively puts both the borrower and the rest of the family at financial risk.

According to a Consumer Financial Protection Bureau (CFPB) report, the number of loans taken out by older Americans (aged 60 and over) within the last decade has nearly quadrupled. Almost 70 percent of this debt is taken out for their children and grandchildren’s education, with older Americans having a particularly high rate of default. According to NPR, “37 percent of federal student loan recipients in that age group are in default, compared to just 17 percent of borrowers 49 and under.” With this, the financial decision to assist with paying for college can come with serious consequences for the borrowers’ well-being. While taking on student loan debt either as a student or family member is not explicitly a bad thing, the perpetual debt many find themselves in as a result is debilitating and especially problematic for low-income families.  

For older generations in particular, the CFPB has reported that repaying loan debt often means diverting resources away from everyday necessities, including things like dental and health care. In 2015, the Government Accountability Office estimated that 114,000 borrowers age 50 and older had Social Security benefits withheld to repay student loans. In these cases, attempts to alleviate the pressure of debt on students and graduates simply shifts the debt burden from one generation to another. This model is unsustainable, as many older Americans cannot afford to take on the debt of their children, and necessitates solutions that address the student loan crisis at its core.

Student loan delinquency (missed payments) and default are disproportionately high in low-income areas. After the recession in 2008, there were nationwide cuts in funding for public colleges and universities. As a result, tuition costs swelled; higher costs led to larger loans, which many families could not afford to pay off. For families who already struggle economically, these mounting costs led to high dropout rates. Without the anticipated future income associated with a degree, these loans have become nearly impossible to pay back.

As we seek to advocate for a fair student debt landscape, we need to recognize that debt repayment for a diverse range of families requires a diverse range of solutions. Ultimately, if we want to level the playing field, we must tackle the high sticker prices associated with tuition that create barriers to higher education for low-income families.

In order for recent graduates and families to attain financial stability and avoid the negative impacts of debt, the cost of tuition must decrease or financial aid must increase - something must give.

In addition to the impact student-loan debt can have on a household, there are other serious implications for our communities. As a result of the diversion of significant financial resources to pay off student debt, other sectors of the economy have experienced stagnated growth. For example, studies show that recent graduates are delaying major purchases, like owning a home or a car, or delaying the financial commitment that comes with having children. Eventually, this lack of purchasing power will hurt the markets many individuals rely on as graduates and their families devote a greater portion of their resources towards paying off loans, rather than putting their money towards other investments.

In order for recent graduates and families to attain financial stability and avoid the negative impacts of debt, the cost of tuition must decrease or financial aid must increase - something must give. The net price for a college education today is higher than it’s ever been before. Before students and their families pay for a top dollar college or university, it’s important that they have a firm grasp on the long-term implications associated with taking out student loans.

Currently, available resources for educating citizens on debt are largely targeted toward future students. Given that students are not the only population currently taking out loans, there must also be similar programs targeted toward parents, grandparents, and guardians of students. Finding the appropriate place for discussions, workshops, and information sessions with all audiences in mind could significantly improve our nation’s situation. For nonprofits, churches, and other civil society organizations, now is a crucial time to develop and promote programming for older citizens. Educating the public about the risks of generational debt is critical.

In addition, government and civil society institutions have a responsibility to ensure that federal and private loans meet certain standards. Student loan interest rates, for example, should not preclude borrowers from being able to pay off their debt. Government should create and uphold policies that promote just lending.

We also need to support the future of federal loans and grant-making programs, which more than half a million individuals rely on. For example, the future of the Public Student Loan Forgiveness (PSLF) program, which forgives loans after the borrower works in the public service sector for a certain number of years, among other requirements, is now in question following the release of the president’s proposed budget which suggested its elimination. The PSLF program previously attracted specialists, including doctors and lawyers, to work for the common good in spheres of public practice, but in the future these commitments won’t come lightly. We should be able to trust financial lenders and grant-making programs to behave justly, enabling us to make decisions without fear that we will be taken advantage of or fall into sudden financial hardship.

Ultimately, it’s important to break the generational debt cycle. We need affordable higher education that families can save for, and that children and grandchildren can manage to pay off before sending their own children to school. Looking at the cycle of student loan debt in America can be discouraging, but there is room for improvement. When we pursue higher education, or support our family members and loved ones who are doing so, we must take action to ensure it unleashes opportunity rather than impedes it.

-Jenny Hyde is an alumna of Gordon College, where she received her degree in International Affairs. She is currently living and working in Washington, D.C.