The Solution to the Student Debt Crisis
We are in a severe $1.3 trillion student debt crisis that impacts 44.2 million US borrowers. I am one of the 2 million students who finished graduate school with six-figure student debt. In 2008, I graduated into an empty job landscape that was ravaged by the economic crash and that would remain in destitution for years to come. For nine years, I have diligently scraped together monthly loan payments. The Great Recession has depleted by personal savings, stunted the growth of my retirement savings, and made me question the value of a diploma. I am astounded that we have not found a solution to this crisis. So please allow me to offer a suggestion to our leaders….
The way out of the student debt crisis is
through a partnership between
student debt payors, their employers, & financial institutions.
We need our government to facilitate such a partnership.
Millennials, who entered the job market during the Great Recession that began in 2008, are being squeezed in all directions by our economic policies. Upon graduating, finding a job was a near impossible task as job markets across industries were depleted by the economic crash. Millennials are known for working multiple jobs and creating their own side hustles. These “profitable hobbies” do not belie a fear of commitment, but rather a lack of funds to pay student debt. While in the legal job market, I relied upon income from private tutoring to help pay my private and public student loans.
For those lucky enough to obtain employment, student debt payments snatch up huge percentages of monthly paychecks. After five years of struggling in the legal field, I changed industries and began a career in education. This move severely decreased my longterm earning potential, but provided steadier employment and benefits in the short term. Nevertheless, more than 50% of my monthly take home pay went towards making monthly student debt payments. The remaining money was not even enough to cover my housing. So I worked multiple side jobs. My daughter was in childcare six days a week, and I increased my side jobs to pay for that childcare, in addition to my other expenses. At the tightest times, I worked six jobs simultaneously: teacher, athletics coach, student travel leader, private tutor, legal services, and blogger.
For those lucky enough to earn base salaries large enough to make their student loan payments each month, savings accounts are small, if they exist at all. I firmly believe that millennials understand the importance of saving for the future, but student debt is making it almost impossible for them to build saving accounts and retirement funds. Next year, I become eligible for my employer’s generous retirement benefits offering, but I have no idea how I will financially afford to participate. Most likely, I will need to find yet another side job to cover the income that will be diverted to retirement savings. I will continue to make student loan payments for another decade. And my personal savings will be postponed yet again.
The student debt crisis is growing rapidly, and it is time to create a society that helps students repay their student debt and save for their futures. We need to stop forcing graduates into an economy built only for those who are both educated and debt-free.
We need to stop forcing graduates into an economy built only for those who are both educated and debt-free.
The forces that require me simultaneously to pay off student debt and to save for retirement make the solution clear. Like a 401(k) plan, employees should be allowed to make pre-tax contributions to pay down their private and public student debt, and employers should be allowed to match the employee’s contributions up to a certain percentage. Once the student debt is paid off, those contributions can be redirected to the employer retirement benefit plans.
With such a benefit plan in place, private student debt will be paid off sooner, saving graduates thousands in interest payments, and retirement investment funds will increase dramatically, building larger funds for retirement. If my employer were able to offer its current retirement plan contribution benefit towards private student loan repayment instead:
- I could pay off my private student loans 4.5 years sooner
- I could still, even nine years into repayment, save more than $27,000 on interest on my loans.
- I could double my longterm retirement savings.
- I could take home thousands of dollars more annually to put towards paying for my daughter’s education, building a savings account, or investing privately.
The way out of the student debt crisis is through a partnership between student debt payors, their employers, and financial institutions. We need our government to facilitate such a partnership. To our representatives and senators: please pass a statute that allows for pre-tax and tax-free private student loan repayment assistance for the employee and employer.
Don't miss my next post!
Enter your email to have my next post delivered right to your inbox.