Impact of Student Loan Debt Crisis on Women

On July 1st, the interest rates for government-subsidized Stafford student loans doubled from 3.4 percent to 6.8 percent. Congress received a lot of criticism for its inability to find common ground with critiques focused on the consequences for more than 7.4 million students expected to take out loans this fall.

Last June, this same debate played out until a last moment deal extended then-current rates for one more year. Lawmakers, much like college students, seem to be great procrastinators in getting to their work. Although one could argue in this case that the stakes are a bit higher than passing a statistics exam.

Most students opt for loans backed by the federal government because of the favorable rates. Even if loan rates rise to 6.8 percent, it will add only an estimated $1,000 to the life of a Stafford loan. Compared to the average $26,600 in total loans taken out by 2011 graduates, this is relatively small. Also, the loan rates apply to new loans taken out after July 1 – not the existing $1 trillion dollars in student debt.

Before we accept the potential reality of the new rates, let us step back and look at the bigger picture. What are the implications for the $1 trillion in student loan debt that already exists? How will the complications of a doubled interest rate be compounded for women?

Women value the benefits of college education and make up more than half of graduates in America today. The reasons women go to college vary, but high among them is the idea that an increased skillset correlates to a higher post-graduate income.  This is reflected in a 2013 study by Dwyer, Hodson and McCloud showing that women were more likely than men to stay enrolled in college and incur higher levels of debt. Women see potentially substantial improvement to their economic forecasts with a college degree and that motivates them despite the debt risk. This is true even though women earn on average just 77 centsfor every dollar a man earns.

Another study, by the Urban Institute, shows that women are more concerned than men about repaying the debt. These concerns are not unwarranted. Loan defaults damage credit ratings and credit-based checks. Sure, we all know a default might make it harder to get a mortgage, but it also might affect job prospects. It is not unheard of today for employers to check a person’s credit report during the screening process.  The newly enacted income-based repayment program does not release one from the burden of paying off student loans. In 2009, 47 percent of women used 8 percent of their salaries to repay student debts compared to 39 percent of men.

A lot of emphasis has been placed on the advantages of women completing college.  Not much focus has been placed on the implications of our current system of higher education, which depends heavily on the indebtedness of students. Nor is sufficient attention being given to high growth professions that, when looked at through a gender lens, reveal tremendous the gaps in payoff by gender despite the same financial investment.

It is unclear if Congress will be able to find a compromise. What is clear is that the implications of student loan debt on women will continue until we start rethinking the way we finance education. 

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