The U.S. student loan program was supposed to reflect an agreement between aspiring college students and the government; the latter would use loans to augment a robust need-based grant system and level the playing field, by providing more students with more help paying for college. In exchange, students would study hard and promise to pay back loans when their degrees inevitably paid off handsomely. A rather narrow accounting of financial aid as only affecting access to college failed to understand its effects on students’ outcomes before, during and after college and, then, opened the door to an ever-expanding role for student loans. If financial aid is only supposed to overcome immediate cash gaps at the point of enrollment, then loans may be viewed as an able a financial aid instrument. However, a growing body of research is beginning to reveal that student loans, large and small, have negative effects on potential students’ college preparation, the decision to enroll in college, which college to select, whether to stay and complete college, which job to take after college, whether and when to marry, when they have kids, the amount of overall financial stress they experience, whether to buy a home, and whether, when, and how much they save for retirement. While the popular conversation about the ‘student debt problem’ tends to focus primarily on high-dollar debt, other studies find concerning effects on net worth and asset accumulation, even at relatively low debt levels. Students who borrow to finance college may see reduced financial well-being, on a variety of indicators, throughout their lifespans, and the accompanying constrained asset accumulation may threaten our aggregate economic security.
Disturbingly, instead of dedicating our policy attentions to solving the problems created, exacerbated, or hastened by student loan reliance, we have mostly moved the goalposts, no longer expecting student loans to be a pillar of educational opportunity and equity. Instead, we console ourselves that most “students will eventually recover.” Or, even when we acknowledge the real, long-term consequences of over-reliance on student loans, we are so deeply mired in debt-dependent financial aid that we cannot imagine alternatives. Further excusing loans’ poor performance, we compare the outcomes of student borrowers with those who never even go to college, essentially erasing the years of real sacrifice—and expense—exerted by students whose efforts are nonetheless insufficient.
“It is a mere inconvenience” is, of course, hollow solace to the millions who struggle to meet their debt obligations and find lag in asset accumulation and overall financial well-being even long after college. More Americans, if not many policymakers, are questioning the wisdom of relying on a debt-dependent financial aid system whose greatest recommendation may be that it does only temporary harm to its users. Our new analysis weaves together a growing body of evidence for a fuller accounting of student loans’ educational and economic effects, as well as disturbing indicators of how student loans exacerbate inequity in the post-secondary education system. Clearly, if we demand that student loans serve their intended purpose of helping to empower the education system to act as the ‘great equalizer’ in society, they are falling far short of this metric. Instead, the very system that is supposed to ‘aid’ students may contribute to the erosion of education’s role as an equalizing force, short-circuiting the economic mobility opportunities that college has long afforded.
We are interested in changing the student debt conversation not just for the sake of debate, of course. We want to see U.S. financial aid policy shift from a debt-centric emphasis to an asset-based approach. We believe that this transition can be catalyzed with the construction of a universal Children’s Savings Account system, providing reparation for Americans already harmed by student borrowing, and repurposing existing financial aid dollars to adequately capitalize students’ asset stores. Pivoting from reflexive defense of a flawed student loan system to embrace a truly progressive system of lifelong savings opportunities, financed with generous transfers delivered early enough in a child’s educational trajectory to really make a difference, could make the prospect of college again a path to upward mobility and greater equity. College still matters. Americans with higher levels of education have higher incomes and greater well-being. The U.S. cannot afford to let our financial aid approach undercut the noble objectives of our education system.