U.S. Secretary of Education Betsy DeVos raised the warning flag of the looming student debt crisis. The outstanding student loan debt makes up one-third of the U.S. government’s balance sheet, says DeVos.
On Tuesday, DeVos spoke at the Federal Student Aid Training Conference, which was held in Atlanta, where over 6,000 higher education financial aid officers were in attendance heeding the warning that the student loan debt crisis could be in jeopardy if the U.S. does not make significant policies changes to how student loans are administered.
Part of DeVos’ remarks said that she is raising “a warning flag with American students and American taxpayers.” While noting that “our higher ed system is the envy of the world,” she also cautioned, “if we, as a country, do not make important policy changes in the way we distribute, administer, and manage federal student loans, the program on which so many students rely will be in serious jeopardy.”
In addition to her warnings about the looming student debt crisis, the Secretary also recognized financial aid administrators for their valuable work and shared some of the ways the administration is rethinking financial aid.
“This crisis demands the attention of Congress, the American taxpayer, colleges and universities, parents, and students. In a word, everyone,” warned DeVos.
The Federal Student Aid program was launched in 1965 and the program has outgrown its current structure and governance, according to DeVos. Since 1965 the program has grown to a student loan balance of $500 billion in 2003. It took six years for the program’s loan balance to double to one trillion dollars in 2017.
According to DeVos that took “[o]ne-seventh the amount of time it took to get to $500 billion.” Today, DeVos said that the FSA program holds $1.5 trillion dollars in outstanding student loans.
“1.5 trillion dollars is almost impossible to fathom. So, let me put it this way: 1.5 trillion dollars is more than 10 thousand dollars of someone else’s student loan debt for each and every American taxpayer—145 million of them,” explained DeVos saying that $1.5 trillion is one-third of the U.S. government’s balance sheet.
“In the commercial world, no bank regulator would allow this portfolio to be valued at full, face value,” said DeVos.
Twenty-four percent of the borrows are currently paying down their principal and interest and nearly 20 percent are delinquent or in default.
DeVos continues to warn that borrowers are paying back so little of their loan back, the balance just continues to grow – 43 percent of the loans are considered “in distress.”
“These loans aren’t just financial products. They represent students and families ‘in distress’ with very real implications for our economy and our future,” DeVos said.
DeVos continues to give staggering comparisons of the student loan debt saying that the debt today makes up 10 percent of the nation’s debt and explains that such debt is not only “burying students in debt, it is also burying taxpayers and it’s stealing from future generations.”
DeVos said part of the issue was caused by the previous administration wherein 2010, the government said that a four-year degree was the only way to a viable career path. The current Education Secretary also said that many of the rules and “parade of options” has made it confusing for families to navigate through repayment.
“Students are taking out tens of thousands of dollars in debt but many are misinformed or uninformed as to the implications of taking on that debt and their responsibilities to pay it back,” explained DeVos.
DeVos said her administration is going to improve this area by educating students on financial literacy by creating new tools that will help students understand their payments. Having students continually plan and understand their debt, she believes, will help students understand their repayment obligations.
The Department of Education also launched a new app, called myStudentAid mobile app, which looks to make it easier for students to sign up for financial aid. The app in the future will allow a student to see how much he or she owes at any moment in time, what repayment options are available, and how those options will impact the total amount owed over time.