Misplaced Blame, Not Misplaced Priorities: Millennials And The Student Debt Crisis

It’s no secret that our nation is grappling with a student debt crisis. It is a widespread problem, with manifold bad actors and agents contributing to the daily hardships many student loan borrowers face. But recently, in a startling move, a slew of articles has moved from targeting groups like big banks and for-profit colleges as the source of many of the nation’s debt woes, and singularly laid blame on another group: the student loan borrowers themselves. But critics are wrong to indict those most impacted by the crisis, especially by selectively uplifting studies commissioned by banks and student loan servicers — the very institutions who are holding $1.3 trillion in debt over borrowers’ heads.

Over 43 million Americans currently hold some share of student debt, with the average loan balance for recent graduates somewhere around $35,000 per borrower. And the sheer volume of debt holders does in fact align with another point: Millennials are a part of the generation most likely to hold a college degree.

In fact, Millennials should be the highest-paid generation in American history. As the generation working in the most productive economy in decades, it would seem only logical that an improving economy would shepherd increasingly positive economic outcomes.

But wages have stagnated, family-friendly workplace policies are middling, unemployment rates for young people — and young people of color especially — remain high, and loads of debt incurred from all that higher education are draining Millennials’ spendable income, leaving debt-to-income ratios that make achieving important life milestones — homeownership, marriage, children — all the more difficult. Moreover, student loan borrowers in particular experience much higher distress levels than borrowers with other types of consumer debt.

That’s what makes this recent commentary suggesting that student debt isn’t holding young people back, and that their misplaced priorities somehow exacerbate the problem, so troubling. What’s more, the research cited for such charges come from beleaguered loan servicers and banks, whose own roles in the student debt crisis are roundly denounced, and whose profit-first business models should be de facto red flags of implicit bias before handling such data.

Likewise, using high-income borrowers who are still able to make big investments like a house or a family as a case study — as has been the unsettling trend in these recent reports — to say that student debt isn’t a problem ignores those who may have smaller debt loads but a worthless degree, (which required taking out hefty loans) or who dropped out of school altogether and are now struggling to make ends meet.

The revisionism here just tells a story of the fortunate borrowers who tend to have greater wealth or more advanced degrees, as compared to the borrowers with lower debt loads but less wealth or a lesser value degree. Research has shown, perhaps counterintuitively, how communities with lower levels of debt tend to experience high levels of delinquency.

Borrowers need to be better informed of the full array of repayment options available to them, and the onus is on loan servicers to do just that. It is too often a lack of information (and at times fraudulent or abusive misinformation) which unnecessarily forces borrowers into default. Pay-as-you-earn and income-driven repayment plans adjust loan payments based on incomes, but are woefully underutilized. In fact, 51 percent of student loan borrowers nationwide are eligible for income-driven plans, but only 15 percent are enrolled. Instead, loan servicers often suggest loan forbearance, in which the borrower temporarily halts payments, while interest keeps piling and debts increase over the long run.

Indeed, it is the function of a loan servicer to fully explain the terms of a loan, and to ensure the borrower understands. It is not, however, the servicer’s function to lessen the gravity, and thereby shift the blame, of the student debt crisis.

As taxpayer-funded machines, federal student loan servicers have a moral and legal obligation to help their customers on a path toward financial stability and success. And as young people navigating a labor market already stacked against them, this assistance is an economic imperative.

Rather than blindly challenging a borrower’s “misplaced” priorities, these bad-apple loan servicers should flip that critique unto themselves and question the merits of prioritizing fast dollars over ensuring borrowers are fully informed of their loan and repayment options. So yes, we’re entitled — to a fair system that works for borrowers, not servicers.