A college education has long paved the way for rewarding careers in many industries. However, over time, tuition and living expenses at colleges and universities in the United States have grown drastically beyond the ability of most families to pay. As tuition fees and other costs rose, students increasingly turned to debt to finance their education.
The result has sometimes been the crushing of debt burdens on large segments of the working-age population – debt increasingly affecting borrowers’ long-term financial futures, with far-reaching policy implications for the wider economy.
By 2022, more than half of U.S. students will drop out of college with student loan debt, the total amount of debt second only to home mortgages.
Federal and private student loan debt total $1.75 trillion, averaging $28,950 per student borrower. Federal student loans represent almost all of this debt, and private loans represent less than 10 percent.
Not surprisingly, younger individuals have the most student loan debt, with borrowers ages 25 to 34 having nearly $500 billion in federal student loan debt.
However, many carry education-related debt into middle age; 35- to 49-year-olds represent the largest number of borrowers, each with a total of more than $100,000 in individual student loan debt.
Large-scale economic impacts
in April 2022, Education Data Initiative published a report concluding that student loan debt is having a recession-like effect on the U.S. economy.
Over the past 10 years, student loan debt has increased by an average of $78.7 billion per year. And since 2000, the total federal student loan debt balance has increased almost sixfold.
The result is downward pressure on consumer spending, lower credit scores, lower homeownership rates, and fewer small business owners who are most likely to use personal finances to build their businesses.
Student loan debt has affected an entire generation
Americans’ student loan debt has caused them to delay important personal and financial decisions.
One April 2022 Bankrate student loan survey Nearly 20 percent of Millennials and Gen Z respondents reported delaying marriage due to student loan debts, and nearly a quarter delaying having children. Collectively, almost 60 percent of respondents said they put off important financial decisions because of student loan obligations.
This is what caught the attention of Boston financial services executive John Hailer eight years ago.
Hailer, former CEO of Natixis Investment Managers and now President of Diffractive Managers GroupNatixis’ annual survey of retirement trends in the United States noted that one in four Americans — and nearly one-third of millennials — cite excessive student loan debt as the number one reason for not participating in corporate-sponsored retirement plans.
“This was a shocking finding for us,” Hailer said. “This meant that a quarter of our working population did not save anything for retirement due to the debt overload of student loans.”
“And the long-term policy implications – for all of us – are even more worrying,” he said. “We know the early years are critical. Investing and stopping regularly before the age of 40 will pay off much more than starting at retirement age at 40. The number one reason why this doesn’t happen is student loan debt.”
Hailer immediately saw a place where Natixis Invest Managers could make a big impact.
“As a business, we’ve seen how we can make an immediate impact in the lives of our employees, and also show how the corporate world as a whole – with a relatively small investment – can move the needle in a big way when it comes to the twin challenges of student loan debt and saving for retirement.
The Natixis student loan repayment benefit was launched on January 1, 2016 and guarantees up to $10,000 to every full-time employee who has been with the company for at least five years and has an outstanding Federal Stafford or Perkins loan. Newer employees will receive this benefit in their fifth year.
It’s not surprising that Natixis employees embraced this initiative. And within a year, Natixis was adding to the student loan debt burden of one-fifth of its employees.
“It was huge,” Hailer said. “The feedback we received was way beyond our expectations.”
The benefit also supported Natixis’ recruitment efforts.
“We did this as a company because it was the right thing to do.” “And it has become a competitive advantage that plays a huge role in both employee retention and hiring.”
Natixis’ industry leadership It paved the way for widespread industry adoption over the next few years by encouraging other leading financial companies to offer their own student loan repayment programs. And in the years that followed, student loan forgiveness soon became a common good at many large companies in the United States.
“Helping people achieve their financial goals is at the heart of our business and industry, so we knew leading by example was the right thing to do,” Hailer said.
At the federal level, the last two developments have signaled further relief for borrowers under the burden of student loans.
When the COVID-19 pandemic began in March 2020, the federal government paused many student loan payment terms. Toward the end of December 2021, 24 million federal student loan borrowers paid off their debts with leniency. This temporary payment freeze is set to expire in May 2022 but has been extended until August 2022.
With the end of the freeze on student loan payments, Biden Management, Student Debt Recovery Plan. This three-part plan is designed to help borrowers revert to regular student loan payment plans. The program includes loan forgiveness of up to $20,000.
First, the student loan repayment pause will be extended until December 31, 2022. Regular payments will resume in January 2023. In addition, the U.S. Department of Education will provide special debt relief to low- and middle-income households. Finally, certain classes of borrowers can forgive all student loans through the Public Service Loan Forgiveness Program.
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