Student Debt Crisis: A 2022 Update

Higher Education is expensive, y’all. As of February 2022, the Global Student Debt surpasses 3-Trillion Dollars. Take a second to digest that. Now, if you’re  finding it hard to comprehend just how much money that is (like we did), consider this:

If you were to stack  $100 bills, one on top of the other, 1 Million dollars would be the height of a  chair. As you continue to stack more bills on top, and you’ll eventually pass  the top of the world’s largest building… that’s only $1 Billion.

Just keep on stacking your bills until your pile is in  the Stratosphere and hits  the International Space Station which is 248 miles or 400 km above the Earth.. You’d have to stack the bills  631 miles or 1015.4 km  from the Earth’s crust just to reach 1 Trillion. Now imagine 3 stacks of 1015.4 km-high $100 bills.Crazy. 

That is the Global Student Debt. 

But before we dive deep into the issue, did you know the US student loan program was initiated because of a political reason? In 1958, the Cold War unfolded fear that the U.S was losing the ‘Space Race’ with Russia. So, the program was launched under  the National Defense Education Act, offering students pursuing degrees in math, science, and foreign languages with scholarships and loans to go to college. But by 1964, new legislation pivoted the focus of these loans to expand the educational scope for Americans. In Canada,  it was introduced by Lester B. Pearson in 1964, during his time as the Prime Minister. 

Since its inception , 45-Million Americans have opted for loans and owe nearly $1.58 Trillion. For Canadians,  1.7 million students owe at least $18.2 billion, and that’s just federal loans. 

So, what are the reasons for this exponential increase of student debt in North America? Well, much of the discourse is around rising tuition, as it should be. According to a recent College Board Report, several factors including lackluster government funding has caused average tuition fees to triple, even after adjusting for inflation. And, naturally when tuition increases, so does the number and size of loans. 

                                                                                     Source: Statistics Canada/ CAUBO

In the US, as of 2021-2022, the average cost of tuition at any 4-year institution is $28,775.  In Canada, for the same academic year, the average undergraduate tuition is $6,838 and postgraduate tuition is $7,472, both up by 1.7% and 1.5% respectively, from previous years. To put this into perspective, let’s look at how much schools are earning from tuition fees. In the US, as of July 2021, 47% of their operating revenue was earned from tuition and other fees and the remaining 53% from Government Funding. Canadian Universities receive 47% of their revenues from the government sources and 28.3% from just tuition fees, which has increased by 27.4% in the last couple of years. 

Now that we are clear about the numericals, you might think to yourself: Is it worth worrying about? Well, the short answer is YES. 

In 2018, student debt contributed to more than 1 in 6 (17.6%) insolvencies in Ontario. Student loans are now the second-largest slice of household debt after mortgages, and bigger than credit card debt. Furthermore, 21% of borrowers have delayed getting married, 26% have pushed back having kids and 36% have put off buying a home.

If we consider our neighbour down south, according to an Equifax survey, a whopping 55.7% of respondents said that buying a home has become a distant memory for them. Students also run the risk of being disqualified for their desired job as 72% employers run a background check on their new employees, and 29% of them run credit checks on new employees. Furthermore, given that 2 out of 10 students default on their loans, there is a high chance of getting your and co-signer’s funds seized by the feds and that includes any kinds of state or federal tax refunds, Social Security and even withhold 15% of your income to help pay back your loans.

If that wasn’t enough, student debt exacerbates the existing racial wealth gap and holds borrowers back from building  intergenerational wealth along with taking a huge toll on the economic growth of the county. It reduces overall spending across sectors and destabilizes personal savings which is a safety net for people in times of major financial events like  recession or retirement. 

Crisis much? 

However, it doesn’t have to be the endgame. If we look at the ongoing approach to lessen the burden i.e. mass loan forgiveness, we’ll see how hundreds and thousands of students are relieved by the decision but on the flipside, hurting hundreds and thousands of working class taxpayers who are technically paying for it. The next best alternative would be to introduce income-based repayment plans, whereby the repayment schedule is tied to the borrowers earnings. Unfortunately, only 43% of undergraduates are aware of this option. 

We, at payd, believe that it is time for some real, transformative change around student debt and how it’s tackled in North America.  Payd has digitized the physical student card while adding tools that will help students pay off their education and succeed in the future with their cashbacks, roundups, crowdsourcing and investment features- because Schools are not in the position to just provide education, they have the responsibility to help pay for it . 

Gone are the days when we thought our educational institutions, their representatives, state education system and several other education associations have conflict of interest on this issue and turned their backs on cost-cutting reforms. It’s high time we worked in tandem and tackled this as a collective national crisis. Payd is ready to spark conversations around student debt destruction, the government and schooling systems doing a better job at educating the youth about options beyond the traditional 4-year College degree and the future of education. 

We know it‘s pretty scary out there and there is no way of sugarcoating the crisis that is student debt, but it’s not too late to be hopeful about the future. 

So, what are you waiting for? Request payd at your school and join us in crushing your student debt and securing your financial future for good.