At over $1.7 trillion dollars, student loan debt has now surpassed credit card debt. With a drastic effect on the ability of the millennial generation to keep up, student loans have come to the forefront of the political debate and resulting in President Biden cancelling $10,000 of federal loan debt for borrowers who meet certain criteria, namely an income cap of $125,000 per individual. In 2008, when hit with a crashing economy, Millennials were unable to obtain jobs after graduation with wages to justify their education investment. In fact, many were waiting tables or working free internships in the hopes of obtaining full time employment with benefits in the future. Today, Gen Z is going through issues similar as a result of the COVID-19 pandemic and soaring costs. As a result, many younger Americans are not following the typical path they may have dreamed of when they were younger. They are not buying homes. They are not saving for retirement. They are not having children, all of which will become factors that may have a drastic effect on the economy in future years. Which begs the question: how did we get here and how do we fix it?

How Did We Get Here?

1. Disparity in Age

The first and most obvious disparity in student loans is between generations. In 1985, the average cost of private law school tuition for ABA approved schools was $7,526 in 1985 dollars.[1] Adjusting for inflation, that cost should be $17,871 in 2019. While inflation has played a large role in the increasing cost of attending law school, the bigger culprit has been the increased tuition rate between 1985 and 2018. The average cost of private law school tuition in 2019 was $49,312 (i.e. 2.76 times more expensive than it was in 1985). Many scholars blame this drastic increase in debt on decreasing public funding and the ability of private schools to continuously raise their tuition with no repercussion and often times no justification except to say that tuition increases every year by the same percentage no matter what.

To compensate for the significantly increased cost, Millennials and Gen Z incurred drastically increasing amounts of student loans, which will take them considerably more time to pay. That extra time to pay often translates to less investment in retirement and home ownership. With the cost of education continuing to rise, the disparity in student loan debt amongst older and younger Americans will continue to increase, unless something drastic is done to control costs.

2. Disparity in Gender

According to the Education Data Initiative, women own 58% off all student loan debt, and black women owe 13% more than the borrowed after 12 years of repayment. It takes women an average of 2 years longer to pay of their student loans despite making higher payments, and LGBTQ+ identifying student borrowers have an average of $16,000 more in student debt than those who do not.[2]

There is no more important factor in the debt repayment disparity among genders beyond salary, which is creating an almost insurmountable wage gap for women. When women make $0.77 for every dollar a man makes, it makes it much harder for women to meet their financial goals, particularly if they are single mothers. Financial concerns also make women more risk-adverse causing them to perhaps take a safer job with lower pay.

Finally, despite composing almost 50% of law school classes, women law school graduates are not typically recruited or hired on at large firms, and even if they are, they are not likely to remain long enough to make partner, which would increase their income to pay off their student debt.

3. Disparity in Race

Disparities in student loan debt and repayment are extremely pronounced when controlling for race. An estimated 86.8% of black students borrow federal student loans to attend a four-year public college, as opposed to 59.9% of white students.[3] This is due to the lack of generational wealth in black and Hispanic families, which means they often times have no college savings or parental help through school.

One might ask why is there such a large gap in student loan debt by race? One key reason is income. High student loan debt is often the result of low income. Low income may be due to working in the public sector compared to the private sector or even failure to negotiate a better salary for fear of jeopardizing the job offer. Black and Hispanic students are not typically recruited into the big law firm environment and often work in the public sector for little pay. Even if they receive a big firm offer, they often do not remain with large firms because they often feel isolated or unsupported. With lower incomes, black and Hispanic students frequently are only able to afford an income based plan, which will more likely than not increase their total loan debt by almost two times the original amount borrowed thanks to compound interest. Further, student debt relief programs like the Public Service Loan Forgiveness have paid out less than 1,000 of the almost 100,000 loans available for forgiveness. Black and Hispanic lawyers, many of whom counted on these forgiveness programs, are now facing years of payments due to low income and compounded interest over the life of their loans.

What Can We Do As a Society To Address the Student Loan Debt Crisis?

1. Provide opportunities to diverse candidates both women and minorities and have a set salary for every new hire according to their position rather than who negotiates the best deal.
   1. As previously stated, high debt is often the result of low income. By paying all new employees a set rate according to position, will likely lift many women, black, and Hispanic student borrowers to higher salaries that are equal to their white, male counterparts.
       
2. Interest rate reduction
   1. Continue to lobby Congress to reduce interest rates for student loans, which skyrocketed after the mortgage crisis. Prior to the 2008 crash, student loan interest rates were notoriously low, usually in the 2-4% range on government backed student loans. After the 2008 crash, those numbers seemed to double for many students seeking to consolidate previous loans or borrow new loans. While there has been some student loan cancellation and some action regarding interest capitalization in certain circumstances, many student borrows, especially those who borrow for law school, will not see real relief unless interest rates are reduced and daily interest capitalization is addressed whole scale rather than in limited instances.
       
3. Be open and honest and help those who do not understand the student loan and repayment process.
   1. No matter the age, there is always something new to be learned. I have had many discussions with Baby Boomers, who did not realize the extent of the student loan crisis (i.e. how much costs increased, compound interest, et cetera). Once explained, they heartily agreed that something should be done. I’ve also had discussions with high school and college students who had no idea that they would likely have to pay twice the amount of money they borrowed. Only by educating those around us, can we prevent future generations from ending up with the same debt burden.

What Can You do Personally to Avoid the Student Loan Blues

Societal solutions are great but let’s be honest, society moves at a snail’s pace and it is unlikely to address this crisis for the many borrowers who are already in it.

1. Make a budget and stick to it.
   1. You have to have extra money after living expenses in order to afford your student loans. You should sit down no less than once a month and assess your income and expenses for that month. Be honest with how much you are spending so you are not running out of money and using credit cards to make it until the end of the month. The last thing you need is more debt. Once you have your budget created, tracking your expenses is essential to see where you money is going. Once you know where you money is coming from and going to, you will be able to create strategies to save money and put extra towards your student loans.
       
2. Make as many extra payments as you can.
   1. I know, I know. We all still want to live and travel and do fun things. These are perfectly ok if it is within your plan and budget. When things go awry is when we buy those $200 concert tickets or that nice pair of shoes. Somehow money disappears out of our budget during the month and we have no idea where it went. To put this into context, if you saved an extra $100 each month, over 20 years with a 5% interest rate, you would save $41,591, thanks to daily compound interest. Now imagine reducing your student loans by $41,591 just by putting an extra $100 a month towards the balance. 
       
3. Check your interest rates annually.
   1. Many student loans are obtained when students do not have jobs or other sources of income, allowing banks to charge them a higher interest rate. For example, the interest rate for a friend’s bar loan was over 10%. However, once she got a legal job and was able to show a steady source of income and refinance that loan to a 4.21% loan. An even better perk was that the loan was payable over five years rather than the 15-20 years of the original lender. That loan will be paid in a third of the time and saving almost 2/3 of the total amount in interest!
       
4. Determine if you are eligible for an interest rate deduction based on organizations in which you participate.
   1. State bar associations; car insurance companies. Many companies will offer a .25% interest rate deduction, which may not seem like a lot but it quickly adds up when you have many thousands if not hundreds of thousands of debt from your undergraduate and law school studies.