Federal Student Loan Debate

Resolution:

Federal Student Loans are an Effective Tool in support of Higher Education Student Wellness
Daniel D. Davis

Abstract

Federal student loans have become an important aspect of higher education. From their humble beginnings in 1958, the use of federal student loans has become commonplace as tuition costs continue to rise. The students most affected by federal student loan policy are those who have inadequate resources to pay for tuition directly and who otherwise do not qualify for grants or subsidies from government, non-profit, or higher education institutions. Federal student loans have the greatest impact on institutions which rely on student tuition to fund the institution expenses. Federal student loan policy should be debated as to its effectiveness. There are many benefits and challenges for students, institutions, and the federal government that are worthy of discussion.

Keywords: federal student loan policy, student loan debt

Federal Student Loans are an Effective Tool

in Support of Higher Education Student Wellness

Federal student loans have become an important aspect of higher education. From their humble beginnings, using federal student loans has become commonplace as tuition costs continue to rise. As of May 2018, there are 44 million Americans with student loan debt (Student Loan Hero, 2018). Total student loan debt stands at $1.48 trillion (Student Loan Hero, 2018). Federal student loans, provided through such programs as the Federal Stafford Loan, the Federal PLUS Loan, and the Federal Consolidation Loans programs, make up a great percentage of this debt.

Federal student loans began in 1958 as a part of the Nation Defense Education Act (NDEA). The NDEA was passed to promote studies in science and mathematics during the height of the cold war. The Act authorized annual loans totaling $47.5 million, a meager amount by today's standards. Federal student loan programs have continued to grow in number and loan amount bringing us to the staggering numbers we see today.

The federal student loan policy should be debated for its effectiveness as a tool to promote higher education student wellness. This paper defines wellness as student emotional, intellectual, physical, spiritual and financial health before and after graduation (Anderson, 2016). Higher education student wellness directly impacts our nation's wellness in general (Ferretti, Jones, & McIntosh, 2015).

On one side, many students cannot afford college without taking advantage of federal student loans. There are also many teachers, professors, and other professionals making important contributions to society because of the education they could obtain by financing educational debt through federal student loans.

On the other side of the debate, it can be argued that by growing the pool of available financial resources to pay for higher education, institutions were encouraged to expand programs and find new ways to spend money that are not essential to student outcomes seeking.

The effectiveness of federal student loans policy is worthy of debate because of the points raised above. Its effect on higher education institutions, students, and the federal deficit has become an important topic. The debate of the topic can be used to help shape federal policy in the area going forward.

Affirmative Case

The Growth in Higher Education Availability

The availability of federal student loans has helped make education widely available. This expansion has helped increase opportunity to all by making college a common part of American life. Sixty percent of high school students expect to graduate from college (Bastedo, Schudde, & Goldrick-Rab, 2016). Ninety-five percent of high school seniors expect to achieve at least some higher education (Bastedo et al., 2016). These percentages have grown since federal student loans first became available in 1958.

This growth has come at an opportune time as the American labor market transitions from a manufacturing to a knowledge-based economy. Over the last few decades, jobs requiring a bachelor's degree (or more) have grown, while the percentage of jobs requiring a high school diploma or less has declined (Bastedo et al., 2016). Federal student loans have allowed all students, regardless of financial resources, to better their lives by pursuing higher education.

Increased Lower Income Student Enrollment

Federal student loans have been especially beneficial to students from lower-income families. Today, a full 90 percent of high school students from low-income families expect to attend college (Bastedo et al., 2016). This growth has aligned with the greater availability of federal student loans.

In 1975, only one-third of high school students from low-income families entered college (Bastedo et al., 2016). By 2012, the number of high school students from low-income families entering college had risen to 52 percent (Bastedo et al., 2016). The growth in lower-income students attending college is attributable to the growth in the availability of federal student loans as federal and state grants have either been decreasing or not keeping up with the increasing cost of higher education.

Over the last decades, federal grants through Pell Grants have remained steady. The maximum 2017-18 Pell Grant legislated by Congress ($5,920) is only 5% higher than it was 40 years earlier (College Board). The decrease in the size of state and federal funding for higher education has created a funding gap which is partially to blame for the rise in student tuition and costs. This gap has fueled an increase in the use of federal student loans. Federal student loans, provided through such programs as the Federal Stafford Loan, the Federal PLUS Loan, and the Federal Consolidation Loans programs provide a growing percentage of higher education funding. Without federal student loans, lower-income student enrollment would not have increased over the last few decades.

The Benefit to Racial Minority Students

Studies have shown that federal student loans benefit racial minority students. One study found that African-American students with student loans were more likely to complete their degrees than those without federal loans (Jackson & Reynolds, 2013). The evidence supports the view that federal student loans help historically disadvantaged students not only access higher education but to graduate.

The Growth in the Number of Higher Education Institutions

As the number of Americans pursuing higher education has grown in part because of the availability of federal student loans, the number of higher education institutions has grown. The "massification" of higher education can be seen in the forms of higher education that emerged. Junior colleges, teachers' colleges, urban universities, and community colleges sprang into existence to help meet the growing number of students seeking higher education (Geiger, 2016).

By 2015, there were over 4,000 degree-granting institutions of higher education (U.S. Department of Education, 2015). This growth presents students with greater opportunities and educational diversity. It is common for the high schooler today to spend days comparing institution to institution in the attempt to determine which institutions best meet his/her educational needs and desires. At the time of this writing, searching for the phrase "choosing a college" on the Google search engine produced approximately 3,890,000 results. Many websites specialize in helping students choose from the universe of educational opportunities that are available. Federal student loans have indirectly helped to create more educational opportunities, increasing the options for today's students.

The Growth in the Number of Higher Education Study Fields

As the number of higher education institutions has grown to meet the needs of the growing number of students, fields of available study have also increased. Although a major reason for the growth of available fields of study is the ever-growing universe of available knowledge, if no students were interested in majoring in the area of knowledge, higher education would not have a financial interest in offering it. Thus, it can be argued that federal student loans have helped to create the vast universe of majors available to student today.

The Pennsylvania State University is a state-related, land-grant doctoral university that has campuses throughout Pennsylvania. It was founded in 1855 by an act of the General Assembly of the Commonwealth of Pennsylvania. Penn State offers more than 275 majors (Pennsylvania State University, 2018). The most popular majors include Engineering, Business, Computer and Information Sciences, Social Sciences, and Communication (U.S. News and World Report, 2018).

The example above shows many majors and areas of study available today. If it were not for the growth of the student population assisted by the availability of federal student loans, this educational diversity would not be possible.

The Growth of Community Colleges

The last item to be explored showing federal student loans to be an effective tool in the well-being of higher education students is the growth of community colleges. There are over 1,700 public community colleges, most of which came into existence during the period of federal student loans (Thelin, 2017). Community colleges enroll more than half of all college students (Thelin, 2017). Community colleges create educational freedom for today's students. Attending a community college near one's home and for a cost often much lower than state or private 4-year higher education institutions helps in a student's overall well-being.

For today's non-traditional student, the option of going to a community college may make the difference between being able to attend college or not. Community colleges are known for having night class options for working adults. They also often provide daycare for single parents (Hill, 2014).

There is a problem in that some community colleges do not participate in the federal student loan program. This lack of participation creates nearly a million community college students who cannot use federal loans to help pay for their education costs (Holland, 2014). As the benefit of federal student loans for student wellbeing is made more apparent, it is hoped that the availability of federal student loans for community college students will increase.

Negative Case

The Growing Cost of Higher Education Tuition

Although the growing cost of college has various attributing factors, it can be argued that the growing pool of available funds made available through federal loan programs is an attributing factor. It is beyond doubt that student loan programs were implemented to help students. No reasonable person would doubt the motives behind such federal policy. But it can be argued that this growing pool of available federal loan resources helps create a tuition inflation spiral which has brought us to the high costs we see today.

Since the emergence of the federal student loan programs in 1958 (Thelin, 2017), the amount of federal government-guaranteed student loans has skyrocketed over the last decades. In its first year (1958), the federal student loan programs provided $47.5 million to help pay educational costs (Thelin, 2017). By 1990, this amount had grown to $4 billion per year (Thelin, 2017).

This growth in available funds has allowed institutions to find new ways to capture this growing pool of money. The cost of higher education tuition and fees continues to grow. Although the rate of increase has somewhat decreased when compared to the last two decades, tuition and fees at public four-year institutions are currently increasing at an average rate of 3.1% over the inflation rate (College Board, 2018). Out-of-state tuition and fees at public higher education institutions have risen 200 percent over the last 20 years (Boyington, 2018). In-state tuition and fees have risen at an even greater rate over the same period (243 percent) (Boyington, 2018). It can be argued that the increased supply of funds (through federal student loans) helped cause tuition inflation.

Higher Education Institution Inefficiencies

As these federal programs inflated the pool of available resources to finance education, higher education was happy to increase tuition to capture this money. Colleges are always ready to spend whatever money is available (Thelin, 2017, p. 163). Thelin writes that "the implication was that colleges always seemed to be able to find a "good use" for whatever funds they acquired. Their work was never done, their education could be improved, and, hence, seldom was their thirst for resources exhausted. The situation was not that a college president or board did not want to save money or reduce expenses, but rather, the open-ended nature of improving quality or extending services tended to lead to immediate "good" spending on programs" (p. 163).

The problem of higher education inefficiency is being addressed both through internal cost analysis and free market forces. An example of internal cost analysis is the Ohio State Department of Education (Ohio Department of Higher Education). They aim to cut Ohio college costs by 1.2 billion dollars over the next five years (Ohio Department of Higher Education). Examples of free market forces stepping in to help increase the efficiency of higher education can be seen in the growth of online learning opportunities, which promise to provide students with more value for their education dollars. These free market forces include online degrees offered through traditional institutions (Liberty University Quick Facts, n.d.) and Massive Open Online Courses (MOOCs) taught by such prestigious institutions as MIT, Harvard, and the University of Maryland (Schools and Partners, 2018). Although these inefficiencies are starting to be addressed, as shown in the examples above, it does not dismiss the view that federal student loan programs have been harmful to students' financial well-being as they have helped fuel tuition increases.

Educational Return on Investment and Student Debt Load

A major trend in higher education over the last few decades is the idea that students should be viewed as consumers of education (Collins, 2013). Although this view is more common in the United Kingdom (Woodall, 2014), it has been making increasing inroads in the United States (Shahdad, 2014). This view holds that purchasing a college education is no different than any other big-ticket purchase. The wise consumer (in this case, the student) compares educational costs to the expected return (as measured in starting salary and career advancement options). Students viewing themselves as education consumers choose schools that offer the greatest return on their investment. Higher education institutions are forced to stay competitive in an ever-increasing competitive higher education market by constantly analyzing their value to students.

This view has grown more popular because of the failure of higher education to deliver acceptable results for many students over the last few decades. This failure can best be seen in accumulated student debt. As of May 2018, there are 44 million Americans with student loan debt totaling $1.48 trillion (Student Loan Hero, 2018).

According to those who view students as education consumers, these statistics validate the failure of higher education institutions to provide value as measured in return on investment (careers and suitable after graduation starting salaries). These statistics also validate the failure of many students to accept their responsibilities as consumers of higher education by making wise decisions in the spending of their education dollars. If the return on investment were there, the number of students who carry debt long after graduation would be much less as the return (increased salaries) would have compensated for the initial investment (student debt). Federal student loan programs failed students by making it easy to pay for education without regard to actual return on investment.

Increase in Majors with No Marketable Outcomes

As noted previously, the growth of federal student loans has encouraged the growth of new majors and fields of study. This growth has been a boom in individual student freedom as a student can now major in almost any area they have an interest in. But has this freedom helped the student's well-being regarding employability after graduation?

It can be argued that the educational freedom of choice created through the growth of federal student loans has ultimately hurt student well-being by not limiting educational freedom by economic practicalities. There are now movements trying to bring closer alignment between educational freedom and economic practicalities. Higher education should collaborate with businesses to assist students in making educational choices that make sense from a future career standpoint (Stokes, 2015).

One area of higher education that is focused on offering educational opportunities that present marketable outcomes is MOOCs. For example, edX has partnered with both higher education and business to present educational opportunities that are not only interesting to the student but also meet real-world needs (Schools and Partners, 2018). Although this development will help current students, it doesn't help graduated students who, partially because of the availability of federal student loans, could focus on any area of study regardless of marketability (Dumbauld, 2016).

Students Rethinking Educational Choices

Weighing the efficiency of traditional higher education by comparing investment (student tuition and fees) to the financial return (salary after graduation) is troubling. The growing student default rate shows that the financial return received by many students is insufficient when compared to their educational investment (Shahdad, 2014). Students use higher education "to establish a career, find employment, and receive satisfactory compensation" (Shahdad, 2014). When looking at the student as a education consumer, return on investment is a deciding factor. Many students have found the return on investment on their traditional higher educational purchases to be insufficient. Fidelity Investments reports that "70% of the class of 2013 is graduating with debt, averaging $35,200," and "39% would have made different choices related to college planning had they understood the total cost of college" (Fidelity Investments, 2013). This level of debt and student dissatisfaction has only grown since Shahdad's article and Fidelity Investment's findings were published (Huffman, 2018).

Effect on Student Life after Graduation

Graduation from higher education involves many more changes than just transitioning from student life. It often includes marriage, home ownership, relocation, and career selection. Undergraduate debt load may discourage students from continuing their education at the graduate level (Malcolm & Dowd, 2012). Also, students will often choose a higher salary career over a lower salary, a public interest career because of their federal student loan debt (Rothstein & Rouse, 2011).

Student debt after graduation also affects home loan purchases by young Americans. A major issue with student loans is that the amount of debt an individual carries may make them ineligible to qualify for a home mortgage (Letkiewicz & Heckman, 2018). This may help explain why homeownership among young Americans has been declining for years.

Although federal student loans help many students to obtain their education, their effect on students continues long after graduation. Many students choose to put off further education and make life decisions (home purchases, career decisions) because of the debt that follows them long afterward.

Summary

It can be reasonably argued federal student loans have been an effective tool in support of higher education student wellness before and after graduation. Higher education has become more available. Lower-income student enrollment has increased. The growth in the number of higher education institutions increases student choice, as does the growth in higher education areas of study. Community colleges' growth helps alleviate geographic challenges and provides additional opportunities through night classes and provided child care. This "massification" of higher education is tied to the growing pool of students and their access to federal student loans.

It can also be reasonably argued that federal student loans have not been an effective tool in support of higher education students. Because of the greater supply of funds for tuition, higher education has increased tuition much higher than the inflation rate. This has fueled increased higher education institution inefficiencies. Students have experienced a growing debt load that is unparalleled in our nation's history. More students are also graduating with unmarketable degrees because of the educational freedom supported by federal student loans. This debt load and marketability of degrees have caused many students to rethink the choices they have made regarding financing their education through federal student loans.

Federal student loans have had the greatest impact on institutions that rely on student tuition to fund a large portion of institutional expenses. These institutions can include community colleges and open-enrollment institutions. The least affected institutions are higher education institutions that fund their expenses through existing endowments. These institutions are often also highly selective in their enrollments. The students most affected by federal student loan policy are those with inadequate resources to pay for tuition directly and who otherwise do not qualify for grants or subsidies from government, non-profit, or higher education institutions.

The constructive debate concerning the effectiveness of federal student loans as a tool in promoting the well-being of students before and after graduation is valuable for all involved. Federal student loan policy should be reviewed not only by weighing initial political motives in the such policy becoming law but by the actual policy outcomes. Forty years of outcomes are now available for review. Some of those outcomes, both positive and negative, have been discussed here. Regardless of any future federal loan policy changes, each student should consider the points addressed above in making his/her best decision regarding what role federal student loans should play in his/her higher education endeavors.

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