"It's this Mount Everest that I'm completely incapable of climbing."

Neil, a 32-year-old attorney, describes the psychological burden of his

massive student loan debt.

"The only thing I can do is ignore it for 20 years and hope that somebody else solves it.”

A National Crisis: The Treacherous Mountain of Millennial Student Debt

Neil tried to follow in the footsteps of his father, also a lawyer. But he ended up with far more debt than he had originally anticipated – $150,000 upon graduating.

And though he was diligent in making at least the minimum payment each month, Neil’s debt ballooned to $200,000 just years later.

Neil is one of the nearly 45 million Americans struggling to pay off a student loan balance. While our collective educational debt has passed the $1.6 trillion mark, this burden isn’t distributed equally among Americans.

Millennials like Neil hold the largest share of student loan debt. They owe, on average, more than $18,000. In contrast, when Generation X was finishing their studies, they had a 2004 median student loan balance of just $13,000.

$13k
Generation X
Debt
$18k
Millennials
Debt
Money Under 30 surveyed over 1,000 millennials to figure out what they themselves thought of their student loans.

What we found was shocking.

Looking back, do you think that your college degree is worth the amount you paid in tuition?

YES 48%
NO 52%

A small but notable group (7.29%) said they don’t expect to be able to pay off their student loan debt before they die.

Despite the inclusion of student loan debt in our national zeitgeist, it continues to pile up, mountain by mountain, for the millions of Americans suffering under the weight of a broken system.

Ultimately, there is little else for the educationally indebted to do but make their monthly payments, all the while sharing in Neil’s hope that somebody, someday, will fix it.

The Growing Student Debt Crisis: A Mountain out of a Molehill

Student loan debt hasn’t always been an existential and financial burden, nor a national crisis.

While I was researching this article, I talked to my parents about their own experiences paying for law school – which they attended in the late 1970s/early 1980s.

They went to a state school, West Virginia University, where the annual law school tuition was “under $5,000” as they recall.

Paying for a graduate degree was such a non-issue that my dad doesn’t even remember if the small student loan he took out was for tuition or textbooks.

Whatever it was, the interest rate was low, and they paid the loan back within a few years.

My Baby Boomer parents aren’t the only generation that could prioritize personal interests and public service above high salaries. When Generation X threw its collective graduation cap into the air, “finding yourself” was still a bigger priority than figuring out how many jobs you needed to hold in order to make your monthly loan payments.

But no longer.

Private tuition has more than doubled on average since the late 1980s, now approaching $35,000 per year. And public tuition has more than tripled, nearing $10,000 today.

Keep in mind that these averages only represent tuition costs, not all of the other expenses such as textbooks, food, and housing that students also must cover.

Over recent years, the average cost of tuition has skyrocketed

Tuition Cost
Source: Trends in College Pricing 2017, Collegeboard.org

There has been a corresponding rise in student debt

Student Debt
Source: Federal Reserve Bank of New York

Meanwhile, the current federal minimum wage – $7.25/hour – has not risen since 2009.

$7.25 /hour federal minimum wage has not risen since 2009 The Current Federal Minimum Wage – $7.25/Hour – Has Not Risen Since 2009.

In 1990, it was $3.80. Thus, a person in 1990 would have needed to work about 839 hours at minimum wage to pay for a year’s tuition at a state school.

839 Hours worked at minimum wage to pay for 1 year’s state tuition in 1990
839 Hours worked at minimum wage to pay for 1 year’s state tuition in 1990

Today, it would be 1,379 hours.

1,379 Hours worked at minimum wage to pay for 1 year’s state tuition now


And this, of course, is why it’s so hard and, in some cases impossible, to pay your way through college now.

Jennifer, 39, grew up on a farm in North Dakota with parents who encouraged her to attend college but couldn’t help her pay for it. “It was definitely a pull-yourself-up-by-the-bootstraps mentality,” she said.

“I was probably the most serious freshman student you’ll ever see, because not only did I work full-time, I also worked part-time as a bartender.”

But even though she held more than one job while in school, Jennifer still graduated with about $50,000 in student loan debt. Today, after 13 years of making payments and one eight-month deferment period while she was out of work, Jennifer still owes about $28,000.

There’s no other way to spin it: for Millennials and the generations that come after us, paying your own way through school means paying off your education debt throughout your working life. As Jennifer told me, “it’s a weight that never goes away.”

So, what happened? Why was higher education so much more affordable for Boomers and Gen X than it is now for Millennials?

To answer this question, let’s dive into the 3 hypotheses for the astonishing rise in tuition costs over recent decades.

State Divestment in Higher Education

State funding support for public colleges and universities has been declining for decades and Millennials are paying the price. For every dollar cut by state governments, there is a corresponding rise in cost borne by the student, according to Dr. Douglas Webber, an economist at Temple University.

As of 2017, for every $1,000 cut by the state in support of higher education, $257 was passed on to the average student through increased tuition costs.

This rate, often called the “pass-through rate,” has not risen evenly over the years.

As with other generational comparisons in this article, Millennials have drawn the shortest stick. Before the year 2000, students were only on the hook for $103 for every $1,000 in funding cuts.

So, who is paying the price for state divestment in universities?

Students.

Students now pay $257 more for every $1,000 cut by government

The Cost Disease

In the 1960s, Economist William Baumol proposed the cost disease theory, which posits that industries reliant on human labor – like higher education – can’t increase their productivity as quickly as other sectors that can turn to automation.

But labor-intensive industries are still forced to raise wages in order to compete for talented labor with other sectors.

Instead of accepting the rising cost of education as inevitable, many people want to find a scapegoat such as faculty members who are viewed as spoiled or out of touch. But university administrators and their pet projects are also easy to blame.

Ultimately, until administrators and faculty can be replaced by robots, a labor-intensive human workforce will result in rising costs without increased productivity.

Until administrators can be replaced by robots, labor-intensive industries will result in rising costs without increased productivity

The Bennett Hypothesis

The expansion of federal student aid is often considered a primary cause of rising tuition rates.

After all, if students can easily take out loans to pay for tuition – whatever the cost – there is little incentive for universities to cap tuition rates. This is especially true since Americans largely believe that a college degree is an essential ticket to the middle class.

This is what’s known as the Bennett Hypothesis, named after William J. Bennett, the former Education Secretary under President Reagan. In a 1987 op-ed for the New York Times, Bennett writes:

“Many of our colleges are at it again. As they have done annually for the past six years, they have begun to unveil tuition increases that far outstrip the inflation rate...If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”

Bennett goes on to argue that “higher education is not underfunded. It is under-accountable and under-productive.”

This theory was proven in a 2017 report from the New York Federal Reserve, which outlined that for every dollar in student loan borrowing, tuition increased by about 60 cents.

The Bennett hypothesis: easily attainable loans will cushion tuition increases

Clearly, no one hypothesis explains rising tuition and student debt.

Taken together, though, these three primary factors are a “perfect storm,” testing Americans’ belief in the value of a college degree and leading to the conclusion that today’s higher education system isn’t working the way it’s supposed to.

A Broken System

“I think the system is so broken as a whole,” said Devin, a 27-year-old in Texas who works in the nonprofit sector.

She graduated with close to $30,000 in student loan debt, and her current balance is just under $23,000. “You’re told that you have to go to college to get a good job, [but] what that looks like financially isn’t necessarily what you think it’s going to be.”

America’s higher education system boasts some of the most prestigious universities in the world. But it’s also one of the few developed countries in which a university education isn’t mostly or completely free.

According to a 2018 OECD report, citizens in about one third of OECD countries don’t pay tuition to attend public universities, while another third pay very little.

Average Tuition Cost by Country (USD)
Source: OECD, Education At A Glance, 2018
Recent changes to Britain’s higher education system may provide the most useful comparison to the US. In Britain, a university education was free until 1998, when a small tuition fee was introduced. This ‘small’ fee has risen since then and is currently limited to £9,250 (about $11,601) per year. That figure is nearly identical to average yearly tuition costs for in-state residents at public universities.

Brits who can’t afford to pay their tuition fees receive a government-issued loan, just like in the US. But British citizens aren’t saddled with debt decades after finishing their degrees as are their counterparts across the pond.

That’s because Britain ties all student loan payments to the borrower’s income and any remaining balance is forgiven after thirty years, regardless of the borrower’s profession.

Public Service Loan Forgiveness

Devin is the only person I talked to whose job makes her eligible for the Public Service Loan Forgiveness (PSLF) program. PSLF was created in 2007 under the College Cost Reduction and Access Act. The purpose of the program is to provide loan forgiveness to people who work for a qualifying government or non-profit organization. On the surface, the guidelines seem simple:

“The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”

However, of the 76,002 PSLF applications that have been processed since Federal Student Aid began reviewing them in 2017, only 864 were approved. And of the total approved, only 518 people have seen their loans forgiven thus far.

But not everyone even got that far. Devin, for example, elected to stay on a regular repayment plan instead of applying for PSLF.

“I didn’t understand PSLF. And the more I researched it, I saw the high rate of denials and nobody could exactly answer what happens if you’re not paying on the loan for 10 years and then you’re denied.”

Others were prevented from even applying for more nefarious reasons.

Last fall, students filed a class-action lawsuit against Navient, one of the Department of Education’s nine contracted student loan servicers. They alleged that Navient deliberately misled borrowers to keep them from enrolling in PSLF.

Indeed, student loans are big business.

While many Americans may think of student loans as “good debt,” or expect better terms and service when they borrow money from the federal government to go to college, ultimately student loans are another type of consumer debt.

In fact, they’ve become the largest category of consumer debt, and therefore there are many institutions (colleges themselves, as well as private lenders and loan servicers) who stand to profit from our collective belief that college is necessary at any price in order to achieve the American dream.

When we asked Millennials about their largest debt, nearly 30% listed student loans – more than any other category of debt. This is in stark contrast to the rest of America, where the largest debt, in general, is mortgage debt.

Efforts have been made at the highest level in our country to fix this broken system.

At the signing for the 2007 College Cost Reduction and Access Act, which improved benefits for borrowers by increasing grant aid and redirecting taxpayer subsidies away from student loan companies, President George W. Bush said:

“Today is a reaffirmation of our commitment, our determination to help more Americans realize dreams by getting a good education.”

Bush’s connection of education and the American dream echoed President Lyndon B. Johnson’s remarks as he signed the Higher Education Act of 1965, the first piece of legislation to introduce federally-insured student loans:

"Here the seeds were planted from which grew my firm conviction that for the individual, education is the path to achievement and fulfillment; for the Nation, it is a path to a society that is not only free but civilized; and for the world, it is the path to peace—for it is education that places reason over force."

In fact, every piece of legislation passed between 1965 and today that aimed at making college more affordable and accessible, was passed with bipartisan support and the best of intentions. Yet, we’ve still ended up with a system that many Americans like Devin don’t even understand or trust to work the way it’s supposed to.

Not knowing what would happen if she spent 10 years thinking she was in PSLF only to be denied, Devin said, “that scared me too much. I’d rather pay for 10 years and get it done than not pay and risk having even more debt at the end of it.”

Income-Based Repayment Plan

Even when loan forgiveness programs work as they are intended to, there are still caveats.

Like many people I spoke to for this article, Neil is enrolled in an Income-Based Repayment (IBR) Plan, specifically Pay As You Earn (PAYE). This means his monthly payments are about 10% of his discretionary income, or $200 per month right now.

PAYE can lead to lower monthly payments, which can be a lifeline for borrowers who otherwise wouldn’t be able to pay at all.

But as is the case for many on IBR, Neil’s total loan balance continued to grow over the years because his lower payments didn’t cover all of the accrued interest, much less chip away at the principal.

For people on IBR who make payments for 20 or 25 years, their remaining balance may be forgiven. However, the lender issues a 1099-C Cancellation of Debt Form, which reports the transaction to the IRS.

Here’s what this means: the IRS counts the forgiven debt amount as taxable income. Depending on the person’s total taxable income for the year (salary, the 1099c amount, etc.) and the tax bracket they end up in, a borrower who begins IBR with six-figure debt like Neil could end up owing a sizable tax debt: anywhere from $10,000 - $60,000.

So sure, having to pay $40,000 or so in exchange for six-figure loan forgiveness is still a good deal – that is, if you can afford to pay it all at once.

But owing money to the IRS can be just as burdensome as making payments on a student loan.

You can ask the IRS for a payment plan, but Uncle Sam will charge a much higher interest rate than the one you’ll get on your student loans.

The For-Profit Nightmare

“I had an interview and the employer said they’d never heard of my school or my degree. It made me feel like my school is worthless.”

Edna is a 31-year-old from Texas who accumulated around $30,000 in student loan debt for what she calls a “worthless education” from American InterContinental University (AIU), an online for-profit school.

“I filled out a form online and they contacted me and said you’ll have your degree in under a year and here’s your career outlook and all this stuff. I was a 19-year-old kid; I didn’t know any better.”

“It was very devastating for me. I was already $30,000 into debt, I didn’t finish the bachelor’s degree program, and nobody recognizes this school [AIU] or the associate’s and I had to start all over again.”

The history of for-profit colleges is about as long as their not-for-profit counterparts. In recent history, the big names have been the University of Phoenix, DeVry, Strayer, and the now-defunct ITT Technical Institute.

Even our current president, Donald J. Trump, got into the for-profit game from 2005-2010 with Trump University, which reached a $25 million settlement in a class-action lawsuit in 2018. TU students alleged that they were pressured into spending thousands of dollars on worthless classes, a similar experience to the one Edna described.

For-profit schools offer open enrollment, meaning they accept anyone who wants to attend as long as they can provide proof of high school graduation. This is similar to the policies of many community colleges, except the for-profit model charges much higher tuition fees.

The for-profit business model appeals to non-traditional college students, meaning older adults, parents, and people like Edna who are working full-time while attending school.

The same qualities that appealed to Edna – flexible scheduling, online classes, fast-track degree completion, and career focus – also appeal to the more than 13% of undergraduates who were enrolled in a for-profit university.

For example, a whopping 96% of for-profit students took out student loans in 2012 and they borrowed larger amounts than their peers in non-profit schools. And today the story is no different at all. This is in part because for-profits tend to charge higher tuition rates than community colleges and public universities, but they are careful to keep their tuition within federal aid limits.

“It was very devastating for me. I was already $30,000 into debt, I didn’t finish the bachelor’s degree program, and nobody recognizes this school [AIU] or the associate’s and I had to start all over again.”

Edna’s story struck me as quintessentially American. The daughter of immigrants who didn’t attend school in the U.S., she didn’t have parental guidance to help her navigate higher ed choices and financing options. Edna worked full-time to support herself and saw college as a path to a better life and career.

After taking 4 years off from studying at her for-profit university, she decided to return to community college to start over. She thought her credits would transfer, but AIU’s regional accreditation wasn’t recognized by Edna’s community college.

“It was very devastating for me. I was already $30,000 into debt, I didn’t finish the bachelor’s degree program, and nobody recognizes this school [AIU] or the associate’s and I had to start all over again.”

Millennials Are Not Working in Their Field

Money Under 30’s survey revealed that upon finishing their education, more than half of Millennials are not working in their field of study.

That is to say, after paying thousands of dollars in tuition and spending four or more years of their lives, half of a generation are not fully utilizing their degrees.

“I had this huge degree that was really cool, but I was just drowning in debt. It was a huge, huge, waste.” Heather, a 38-year-old from Kentucky, was referring to her Doctors of Chiropractic degree and current student loan balance of about $264,000.

Heather tried to open her own chiropractic office, but it wasn’t financially sustainable.

“It was tough, it was really hard. I had two little girls and I just couldn’t do it. I did have a few really good patients who loved me, but it wasn’t enough and on top of that, their insurance company argued with me over payments. My parents were emotionally supportive but I had no financial backing.”

Today, Heather works in the healthcare and pharmaceutical industry. I asked how she felt about not working in the field her degree is in.

“I make less than I would have liked to have made as a chiropractor. Not a lot less, but what frustrates me the most is that I could have done the job I have right now without that degree...and been a hundred-thousand-plus freer in life and not burdened my whole family psychologically and financially. We could be in such a better place.”

In 1978, single male boomers were actually earning 10% more than the U.S. average - now, male Millennials lag behind by 10%.

In 1978, female boomers were really struggling, earning 31% less than average. And although there has been a slight relative improvement, they’re still lagging far behind the U.S. average, earning 28% less than their working counterparts.

Youngest Working Generation Earnings

In 1978, young males were earning above the U.S. average, while young women were struggling well below their peers. But now, Millennial males have fallen behind the U.S. average. And the situation for Millennial females has barely improved at all.

Like everyone I talked to for this article, Heather was trying to do everything right. “I was an overachiever. I started college early.” While still in high school, she would ride her bike to the community college to take extra classes for college credit.

“So I went to college for 10 years and at the end of it you see that dollar sign and you’re just like, ‘crap.’ It just was such a shock and I had no idea how I was going to pay it...I thought I was going to die. I remember calling the Direct Loans servicer and saying, ‘what am I going to do?’ I calculated the interest and I thought, ‘even if I pay you what you’re saying I owe, not even one penny goes to the principal, so it just will continue to grow forever.’ And they were just like, ‘yup…’ Talk about depression; it’s really scary.

At one point I was like, ‘should I fake my death?’ And they said technically they could charge my children if I did that.”

The Future of Student Loan Debt

The student debt crisis has been sweeping the political discourse ahead of the 2020 presidential elections. Both Democrats and Republicans recognize the rising student debt as a major problem facing young Americans, and both are proposing overarching solutions to fix it. But, as you can imagine, they are approaching the issue in very different ways.

Democrats are largely in favor of massive loan forgiveness programs that would see student loan debt canceled. Republicans are pushing for caps on borrowing to prevent students from taking out more loans than they can handle.

Senator Elizabeth Warren, for example, released a proposal to cancel up to $50,000 in student loan debt for 42 million Americans. A majority of voters support the Democratic presidential candidate’s plan; even 52% of respondents who never had student loans themselves are supportive of student loan forgiveness.

“Our student loan debt crisis is the result of a government that prioritizes tax cuts for billionaires and giant corporations and offloads the cost of higher education onto students and their families.

My plan would cancel student loan debt for 95% of Americans who carry it, close the racial wealth gap, and make sure every kid has an opportunity to build the future they want.”

Senator Warren, speaking with Money Under 30

Republican Senator Lamar Alexander from Tennessee has proposed some big changes to the Higher Education Act including reducing student loan repayment options and automatically deducting 10% of a borrower’s discretionary income each month until the loan is repaid.

Senator Alexander’s office didn’t respond to Money Under 30’s request for comment.

In the Executive Branch, the Trump Administration made its own proposed changes to the Higher Education Act, echoing Senator Alexander’s call for reducing the number of repayment options and suggesting a lower cap on the total amount of money students can borrow.

Additionally, Education Secretary Betsy DeVos has eliminated the “gainfulemployment” regulation intended as a check on for-profit schools with poor records on student job placement and debt.

Even Silicon Valley has entered the student loan business, with fintech lenders like Credible and Earnest attempting to reshape the landscape of student debt in the United States. Student loan refinancing gives applicants a chance to reduce their interest rate and change their loan terms and monthly payment amounts.

I spoke to David Green, Chief Product Officer of student loan refinancing company Earnest, to find out what they have to offer borrowers in the way of student debt relief.

“I think it’s definitely out of control, with increasing tuition costs being what they are... student loan debt is second only to mortgages in this country. People are delaying buying houses. For Earnest, I don’t think that there’s one silver bullet... there are lots of different players who have to think about being a little more responsible and trying to fix things where we can.”

America is increasingly concerned about the Millennial struggle with the steep mountain of student debt. But Democrats and Republicans seem to be setting up camp on opposite sides of the base, and once again an entire generation is left to climb alone.

The Bottom Line: Are Student Loans Worth It?

University degrees writ large are certainly worth the investment. Overall, workers with a Bachelor’s degree or higher make more money over their lifetimes than those without a college degree.

Dr. Webber’s report indicates that “the financial returns to graduating from a four-year college far outweigh any costs for the average student.”

Among the statistics that Dr. Webber includes to support his argument is this mic drop:

“The typical college graduate will earn roughly $900,000 more than the typical high school graduate over their working life.”

Even the highest student loan balances I encountered over the course of researching this article were “only” around $200,000, less than a quarter of that lifetime earnings boost.

One could argue that any amount of student loan debt is worthwhile if you will make far more overall.

But of course, that’s the average. Some fields are simply more lucrative than others, and not all degrees are created equal.

At the top of the list of in-demand jobs are STEM degrees like Medicine and Software Development. And STEM fields such as Engineering, Computers, and Science dominate Kiplinger’s 2019 list of the most lucrative college majors.

Students inclined to the Liberal Arts, like I was, shouldn’t despair. Kiplinger’s also mentions Classics and American Studies as in-demand Liberal Arts degrees whose primary skills of critical thinking and research can lead to successful careers in a variety of industries.

Ultimately, any major can be worth it if you don’t have to go into thousands of dollars of debt to finish your degree.

The question really becomes – are the loans you need to take worth the value of your degree?

As I discovered while researching this article, student loan debt tends to follow people well into their adult lives, especially if much or all of your debt is from graduate school. Theoretically, a person who graduates with a Bachelor’s degree at age 21 and enrolls in the standard 10-year repayment plan would be finished paying off her student loans by age 31.

That repayment period could still overlap with major life events and expenses such as marriage, buying a first house, and having children.

But most of the people I talked to for this article, as well as my friends and peers, are older than 31 and still chipping away at sizable student loan balances. Many Millennials, myself included, spend hundreds of dollars a month from our take-home pay to student loan servicers. This while raising children and contributing to their college savings accounts, putting money in our IRAs or 401(k)s, wondering how many miles we’ll get before we have to buy a new car, and aspiring to home ownership. In short, we’re just trying to be middle class.

Ultimately, prospective students must balance these considerations to decide whether or not it’s worth it to take out student loans to fund their education.

And it’s not an easy balancing act.

Is it any wonder that so many of us feel like the system is broken?

Credits
Written By
Elizabeth Helen Spencer
Production By
Stav Adler
Design By
Nir Levi
Edited By
Ariella Zeller and Yoni Dayan