JPMorgan CEO Jamie Dimon runs the nation’s largest bank – with $2.6 trillion in assets and 250,000 employees around the globe – but while he is plenty busy, he has certainly made time to raise awareness about the ailing student loan industry.
In his annual letter to shareholders, for example, Dimon said “irrational student lending, soaring college costs and the burden of student loans have become a significant issue.”
He noted the student loan crisis is starting to have economic impacts, and is correlated with declining homeownership rates among young Americans.
“It’s a big issue,” Jane Scaccetti, cofounder of tax accounting firm Drucker & Scaccetti, told FOX Business. “People are coming out of school and they have unbelievable amounts of debt.”
Last week, Dimon told Yahoo Finance that student lending in the U.S. has been “a disgrace.” He also said the U.S. government has “irresponsibly” lent borrowers more than $1 trillion since 2010.
Outstanding student loan debt surpassed $1.5 trillion in 2018, second only to mortgage debt.
Here’s a look at how some are looking to address the issue.
Student loan debt forgiveness
One of the big, new movements on Capitol Hill are initiatives to forgive millions of Americans’ student loan debt. Independent Vermont Sen. Bernie Sanders and Democratic Massachusetts Sen. Elizabeth Warren – both of whom are running for the Democratic Party’s nomination in 2020 – have unveiled recent plans to completely wipe out the debts of student borrowers.
The top question critics are asking is how such a proposal would be financed. Sanders said he would pay for the forgiveness plan through a speculation tax on Wall Street – which would tax trades of stocks, bonds and derivatives. Warren has said her “ultra-millionaire tax,” or a tax of 2 percent levied on those with more than $50 million in assets, would offset the costs.
But there are other problems with simply wiping out Americans’ student debt.
Some parents, for example, borrowed from their mortgages so they didn’t have to take out loans for their children, Scaccetti noted. Now those people may have no equity – or negative equity – in their home.
James McGrory, a tax professional at Drucker & Scaccetti, also noted that some people made college decisions based on the idea that they would have to repay loans upon graduation – for example some people may have chosen to attend community college instead of a private institution, possibly lowering their job prospects or earnings potential.
And others believe it would be unfair to those who already paid off their student debt.
Rep. Dan Crenshaw, R-Texas, recently called the proposals “immoral,” because they favor an advantaged minority of people who had the opportunity to obtain a degree – at the expense of “hardworking taxpayers,” whom either don’t have degrees or have already paid off that debt.
As previously noted by FOX Business, some forgiven loans would still leave taxpayers subject to tax liabilities.
Another solution is looking for ways to lower the costs of college.
“Is it really the question of the debt itself or really the cost of the education?” McGrory asked. “Shouldn’t we deliver the education different so it’s more affordable at the other end?”
Tuition and fees for the 2018-2019 school year averaged $35,830 at four-year private, nonprofit institutions, according to data from the College Board. At public four-year in-state institutions, the average was $10,230 – and $26,290 at public, four-year out-of-state colleges.
While private universities handle their own books, public schools are run by the states.
One solution a handful of institutions are looking into to help more people afford college costs is income share agreements. An income share agreement offers students schooling and training at no upfront cost, but instead requires people to pay back those expenses once they land a job.
The Trump administration has also harped on the usefulness of apprenticeship programs as a college alternative, which are gaining popularity around the country. Companies such as Intel have growing apprenticeship programs.
Meanwhile, lawmakers – including Sanders and Warren – are also advocating for eliminating tuition at public and community colleges.
Sanders wants to invest more heavily in work-study programs, which can lower tuition and fees for students who work a job, Andrew Pentis of Student Loan Hero told FOX Business.
Others have proposed increasing the amount of funds allocated toward Pell Grants.
When it comes to actually lowering the physical costs, however, Pentis noted the discourse hasn’t really veered in that direction.
“The conversation has really been dominated by these large, grandiose proposals,” he noted.
Making colleges more accountable
The Trump administration put forth an idea to require colleges to have more “skin in the game” when it comes to student loans.
Students are required to pay back their loans regardless of the “quality” of education received, which may directly affect their ability to fulfill obligations as a borrower. Unfulfilled obligations bear no consequence on the college.
Pentis noted there have been some proposals floated that would make aid available to schools based on performance – i.e. how many students it graduates.
What if nothing is done?
If nothing is done to address the cost of college, and tuition continues to rise at the rate that is has over the last five years – college students could be facing private tuition fees as high as $400,000 in two decades.
The effects on the U.S. economy could also be dramatic. As noted, many young Americans are also unable to make a home purchase due to their student debt loads.
Pentis said that there could be so much competition to get into affordable schools that some people may not be able to attend at all.
Alternatively, he noted, parents who have lived through the current situation may be better able to equip their children with tools to navigate the environment. He also said online courses and income share agreements could become more prevalent.