Student Loan Debt: Online Communities & Reform

The study reveals a strong correlation between student loan debt and educational attainment. Borrowers with less than $40,000 in debt generally hold only bachelor's degrees, while those with higher debt levels (over $40,000) tend to possess master's degrees. This finding aligns with previous research indicating a link between graduate school enrollment and increased debt loads (Kantrowitz, 2012; 2015; Browne, 2013). The research notes that this pattern is expected, as higher education levels typically correlate with greater borrowing. The study uses a $40,000 threshold to differentiate between the two groups, acknowledging that this figure is projected to become the average student loan debt at the time of publication, based on Kantrowitz's (2015) analysis showing that bachelor's degree holders graduate with roughly $35,000 in debt. The $40,000 mark therefore serves as a useful benchmark for comparing the two groups and understanding the impact of debt levels on various aspects of their lives.

Significant financial disparities exist between the less indebted (under $40,000) and more indebted (over $40,000) groups. Statistical differences are observed in yearly gross earnings, with the more indebted group generally earning more. However, this higher income does not translate to superior financial health. The more indebted group exhibits lower monthly savings, allocates a larger percentage of monthly income to student loan repayment, carries higher maximum credit card debt, and falls into a lower FICO score category compared to the less indebted group. These findings suggest that despite potentially higher earning potential, the elevated debt burden of the more indebted group significantly hampers their overall financial well-being. This highlights a crucial aspect of the student loan debt problem: higher earnings do not necessarily equate to better financial stability when burdened by substantial debt.

The research uncovers noteworthy differences in health behaviors, stress levels, and political beliefs between the two debt groups. The more indebted group displays a higher tendency to forgo addressing health concerns, possibly due to the financial strain of their high debt levels. This behavior is particularly pronounced among those enrolled in income-based repayment plans, as the minimal progress on loan principal repayment under these plans might deter them from incurring additional medical expenses. Stress levels also differ, with the more indebted initially showing higher levels of stress. However, the study finds an unexpected negative correlation between stress and student loan debt at the highest levels, suggesting that extreme debt may lead to a form of acceptance or resignation to the situation. Lastly, political attitudes show variations, indicating differing preferences for policy priorities related to student loan debt relief.

The research investigates whether high student loan debt impacts major life milestones like buying a house, buying a new car, marriage, and having children. Interestingly, no significant differences are found between the two debt groups regarding the years these milestones are delayed. While the more indebted group allocates more income to loan repayment, saves less, and has lower credit scores, they still project similar timelines for these life events compared to their less indebted counterparts. This finding suggests that the more indebted group might be overly optimistic in their projections, especially considering their significantly weaker financial position. The lack of discernible difference in the projected timing of these milestones highlights the need for further investigation into the psychological and behavioral factors influencing the expectations and coping mechanisms of individuals with substantial student loan debt.

A key finding of the research is the correlation between enrollment in Income-Based Repayment (IBR) plans and the tendency to neglect health concerns, particularly among the more heavily indebted group (those with over $40,000 in student loan debt). The study suggests that this is likely because IBR plans often result in minimal progress toward paying down the loan principal. Coupled with the significant tax liability on any forgiven amount, this situation may deter borrowers from incurring additional medical expenses. This finding highlights a concerning consequence of income-driven repayment plans: a potential trade-off between managing debt and maintaining adequate healthcare. The study underscores the need for further investigation into the long-term effects of IBR on borrowers' financial and health well-being. The researchers note that few studies have explored these behavioral and attitudinal outcomes, possibly due to limited participation in IBR programs before the implementation of the Revised Pay As You Earn (REPAYE) plan which expanded eligibility. This lack of research makes this finding particularly noteworthy.

While Income-Based Repayment (IBR) plans offer potential benefits to borrowers, the research also identifies several concerns. One criticism, echoing Best & Best (2014), is that IBR may create a disincentive to borrow responsibly, as any additional debt is likely to be forgiven. However, the researchers temper this concern by noting that forgiven amounts are generally taxable income. Another major issue is that borrowers may never reduce their loan principal, even while diligently making payments as required, because of accrued interest. While this might seem like a loss for the government, the research points out that the government still profits from IBR, and so this structure does not necessarily cause a large financial drain. The most significant negative consequence of IBR, according to this study, is the continuing attachment of the growing debt to borrowers' creditworthiness, despite ongoing payments. This means that even after loan forgiveness, borrowers might have a credit score that is similar to, or even worse than, what it was before they began the IBR plan.

The research does not find a significant connection between enrollment in Income-Based Repayment (IBR) programs and the ability to save money. This indicates that IBR, while potentially alleviating immediate repayment pressure, does not necessarily improve overall financial stability. The study suggests this is a critical area that requires further investigation to understand where these borrowers' money is going, and how the structure of IBR is affecting their financial decision-making. The lack of improvement in savings is particularly important given the context of existing research indicating a strong correlation between student loan debt and reduced savings for retirement, as well as difficulty accessing emergency funds (de Bassa Scheresberg, Lusardi, & Yakoboski, 2014). Therefore, IBR, while superficially providing debt relief, may not be addressing fundamental concerns regarding long-term financial health and security. The study implicitly suggests that additional financial literacy resources may be necessary alongside IBR programs to help borrowers manage their finances effectively.

The research contrasts IBR plans with traditional fixed repayment options. Standard repayment plans involve 10 years of equal payments, while extended plans stretch over 25 years with remaining balances forgiven (though taxable). A key difference is that fixed repayment plans don’t account for socioeconomic or personal economic changes, potentially disadvantaging lower-income individuals and those in early-career stages (Carlsson, 1970; Migali, 2006). IBR aims to address these shortcomings by basing payments on discretionary income. However, the research suggests that even IBR, with its limitations and potential for deferred principal repayment, does not offer a comprehensive solution to the financial problems faced by student loan borrowers. The analysis highlights the need to consider the various aspects of existing repayment options and the inherent trade-offs they present to borrowers. The complexities of various repayment options underline the need for additional policy discussion, particularly in light of the significant number of borrowers who have experienced delinquency (FSA, 2014).

The study reveals nuanced political attitudes towards student loan debt among borrowers. While both groups—those with less than $40,000 and those with more than $40,000 in debt—generally believe the government should prioritize addressing current debt before focusing on future debt prevention, their views diverge on supporting policies aimed at easing future debt. The more indebted group demonstrates greater alignment with the 'social good' aspect of supporting such policies, potentially reflecting their deeper financial investment in higher education and their greater financial strain. In contrast, the less indebted group, while acknowledging higher education as a social good in principle, may prioritize their immediate self-interest over supporting policies that benefit future generations. This disparity suggests a complex interplay between personal financial circumstances and support for broader societal initiatives related to student loan debt. The study highlights how the level of individual debt significantly impacts the political views and priorities of borrowers.

The research explores how individual self-interest and asymmetrical information shape political behavior among student loan debtors. The study draws upon Stiglitz's (2012) work to highlight how self-interested behavior can undermine collective action and benefit those already advantaged within the system. A "what_about us" mentality, preventing unified support for nationally promoted debt-free college policies, is identified as a significant obstacle to building effective political movements among borrowers (Collier et al., In Review). This highlights how asymmetrical information, particularly the idealized promises made by colleges about post-graduation job prospects and debt manageability, can contribute to a lack of trust and hinder the development of cohesive political action. The findings suggest that addressing these dynamics is crucial for creating effective and collaborative political action among borrowers to advocate for student loan debt reform.

The study considers the political implications of the growing prevalence of student loan debt among higher socioeconomic groups. Previously, modifying student loan policies was considered politically risky due to potential backlash from middle and upper-class voters (Best & Best, 2014). However, the increasing reach of student loan debt into higher income brackets suggests that policymakers might find greater space to address student loan issues without fear of losing crucial votes. The study implies that the rising prominence of student loan debt as a concern across different income levels might create a political opportunity to enact significant reforms. The authors cite the growing popularity of figures like Elizabeth Warren and Bernie Sanders, who advocate for student loan relief, as evidence of increasing public support for such policies. This suggests that, given the ongoing financial struggles among borrowers regardless of their income, student loan debt could soon become a more prominent and politically actionable issue.

The research highlights a strong desire among borrowers, across both debt levels, for student loan interest rate modification. Many participants feel the current interest rates are unfairly high, citing the favorable terms offered to corporations during the economic recession as a point of comparison. The unfairness of interest rates is a recurring theme, fueled by the perception that these rates are used as political tools (Bolton, 2013; Lewin, 2012; Resnikoff, 2013). The ongoing efforts of Senator Warren to lower student loan interest rates to match bank rates (Dash, 2015) and the Republican opposition to these efforts (Carney, 2015) are frequently mentioned by participants. This suggests that interest rate reform, aligning student loan rates with those offered to the corporate sector, is a viable and widely supported solution for reducing the burden of student loan debt. The high interest rates experienced by borrowers, combined with the fact that a large portion of their monthly payments goes to interest rather than principal, strongly indicates the need for policy changes in this area.

The study explores various proposals for student loan debt forgiveness, including a "Robin Hood" tax on financial transactions and reductions in military spending. While full forgiveness is desired by many, a consensus on how to achieve it is lacking. The idea of closing corporate tax loopholes and implementing a financial transaction tax is frequently mentioned as a mechanism to fund loan forgiveness. The College for All Act (S. 1373; H.R. 4385), proposed by Senator Sanders and Representative Grayson, exemplifies a multifaceted approach that includes tuition elimination at four-year institutions, interest rate reduction to 2.32%, student loan refinancing, increased work-study opportunities, and a 0.5% "Robin Hood" tax on Wall Street speculation to fund tuition-free public colleges. This highlights a range of potential mechanisms for debt relief, balancing the desire for forgiveness with the need for sustainable funding sources. The feasibility of a financial transaction tax, with potential to raise $75 billion in 2017, is supported by the research of Burman et al. (2016).

The research suggests a shift from the current mortgage-like repayment structure of student loans, citing Friedman's (1955) argument that this structure is unsuitable for financing human capital investment due to the variability of life circumstances (Dynarski, 2016). Instead, the study proposes exploring a career-long tax model, where borrowers pay a small percentage of their income over their working lives in exchange for higher education funding. This model, similar to aspects of Friedman's ideas on education funding, is advocated as a more flexible and equitable approach than current IBR systems and fixed repayment plans. The research acknowledges that this model would require fine-tuning and would need to include mechanisms such as maintenance-of-effort expectations on states. This approach could also satisfy the neoliberal belief in personal responsibility while simultaneously offering greater flexibility and safety nets for borrowers. The study suggests that given the pervasive nature of student loan debt even within higher socioeconomic groups (Fry, 2014a), there might be greater political support for such reform than has previously been assumed (Best & Best, 2014).