I originally borrowed student loans in 2005 to finance my first year of college. It is almost hard believe it has been sixteen years since I first started my student loan story, and this was half a lifetime ago. As I reflect on what student debt was like decades ago, there are definitely several ways how student loans have changed over the years, and the student loan landscape is in many ways better now than it was in the past.
Income-Driven Repayment Plans
One of the biggest ways how student loans have changed over the years is with income-driven repayment plans which allow borrowers to just pay a set percentage of their income to student loans each month. After a certain period of time has passed, the balance on the debt is forgiven, and the student does not need to make any further payments. Income-driven repayment plans were first available around 2007, and have become an integral part of the repayment stories of many borrowers.
In the past, borrowers had little hope of ever seeing a day when they would be free from a mountain of student debt. Indeed, it was not inconceivable that some people who borrowed massive sums of money would enter retirement and still be repaying student loans. However, income-driven repayment plans ensure that no person needs to spend several decades paying off student debt since the balance of student loan debt is forgiven after a period of time under these programs.
One way how student loans have changed over the years for the worse is with interest rates. When I first started borrowing student loans, the interest rates on some of my loans were insanely low, in the range of two to three percent. I believe that one of the reasons why the interest rates were so low is because the government was guaranteeing student debt, so banks felt comfortable offering such low interest rates to students.
Interest rates on federal student loans is often much higher in the present. Indeed, I had some federal student loans with interest rates around seven or eight percent. I believe one reason for the interest rate increase is because the government needs to finance the debt forgiveness of income-driven repayment plans noted above. In essence, everyone pays higher interest rates so those who cannot pay debt as easily are given a break. Many people will trade the security of income-driven repayment plans for higher interest rates, but some people who know they do not need the benefit of such programs might want the lower interest rates that were easier to find in prior years.
Public Awareness of Issues
Another way how student loans have changed over the years is in the public perception of student debt and the challenges that students face if they need to borrow mountains of debt to earn a degree. Years ago, there was a common perception that student loans were not that much of a big deal, even if a borrower needed to take out tons of debt in order to earn their degrees. Common perception dictated that those with more debt because of educational costs could earn more money, and as a result, student loans were a business expense for working toward a more comfortable life.
Around the Great Recession, when the job market tanked and people with massive amounts of student loans could not find jobs, the narrative changed. After this time, the common perception was that student loans can be a financial impediment and should only be borrowed in certain circumstances. This perception continues into the present day, and people are far more cautious about student debt and the impact this can have on someone’s financial future than they were years ago. Of course, some old timers still have erroneous perceptions about student loans but the vast majority of people have a substantial understanding about the consequences of borrowing substantial sums of student debt.
Similar to the sentiment above, student loans have changed over the years because more and more people are choosing to forego college and graduate school. The world needs many tradesman and other blue collar jobs to complete tasks that are required in order for all of us to live in our society. Some of these jobs are very high-paying and provide other benefits. Indeed, many tradesmen belong to unions which organize health insurance, pension plans, and other benefits for workers. In addition, wages for unskilled and semi-skilled workers have risen in the past several years as more people attend school and leave a smaller work force that can compete for higher salaries.
As this website has recounted in several prior articles, individuals need to be careful when choosing not to attend college or graduate school. Moreover, sometimes college makes sense for the social benefits beyond the advantages that can be realized in the job market. However, people are far more likely to decide to forgo or temporarily delay enrollment in educational programs in favor of lucrative opportunities in the workforce.
I do not think that I am old by any stretch of the imagination, but it is interesting to reflect on how student loans have changed over the years in my time experiencing student debt. And it is going to be interesting to see how the student debt landscape changes in the next decade or so.