Go to college and you improve your chances of making more money in your career. It’s, plus a good party here and there, all the groundwork that has set about 40 percent of Americans with a college degree on their way to pursuing a more prosperous future.
But, like a ShamWow infomercial from the early 2000s, what you get when all is said and done isn’t quite what you were sold. According to a new report by the nonpartisan research organization Jain Family Institute, student loans, which about 70% of college graduates rely on to fund their education, have stifled the once-promised path to middle-class life.
The report challenges the assumption that student loans and the cost of education pay for themselves over the long term as the earning potential of borrowers increases. He found that debtors struggled to substantially repay their loans even 10 years after graduation. Looking at a cohort of borrowers from 2009, the report found that 50% of undergraduate borrowers had defaulted on their loans. In different types of loans, borrowers owed between 50% and 110% of their original loan 10 years after repayment began.
This figure is felt more intensely among black and Latino borrowers, where about 75% and 60%, respectively, had balances above the original loan amount, compared to 50% of white borrowers.
“If the university really offered borrowers a stable and reliable wage premium, after a normal 10-year amortization schedule, the percentage of outstanding student debt would approach zero,” writes Laura Beamer, author of the report.
Beamer argues that wealth is more important to the discussion than earning higher incomes. The majority of outstanding student debt, whether borrowers have earned more or not, is held by those in the bottom 25% of the wealth distribution.
“Being a high-income borrower does not equate to being rich,” she writes. “Debt financing of education exhibits a regressive distribution across income, race, class, and gender.”
A college degree defeats the American dream
Earning a college degree has long been heralded as an essential part of the American dream, seen as the path to the wealth that will eventually come by buying a suburban house with a white picket fence. But the Jain Institute report shows that this is no longer the case.
In its announcement proposing the student loan forgiveness program of up to $20,000, the Biden administration wrote that “the cost of borrowing for college is a lifelong burden that robs them of [a middle-class life].”
This burden, according to the parrots of the Jain report, is felt particularly by non-white, low-income borrowers and women, who are often more likely to need to take out student loans.
Even if their degree means they will earn more than they otherwise would have, other systemic factors present in the workforce prevent the cost of debt – which is higher than that of male, white and the upper class – to reimburse themselves. .
“The system persists because of an overly simplistic idea: a typical college graduate earns more than a typical high school graduate. At first glance, this data point makes public and private student loans appear to be a profitable investment,” writes beamer.
“Student loans remain the only viable option for millions of Americans to fill financing gaps,” she continues. “Biden’s cancellation plan offers significant relief to millions of these disadvantaged borrowers, but, in the absence of systemic change to the higher education funding system, the regressive borrowing trends presented in this report are unlikely to change.”
Sign up for the Makeshift Features mailing list so you don’t miss our biggest features, exclusive interviews and surveys.