Introduction
The COVID-19-related college loan pause in the U.S. temporarily alleviated the student debt crisis without addressing it. The U.S. student loan system is associated with various negative trends. Student loans facilitate Americans’ access to tertiary education, which keeps the demand for them elevated. However, the current system can undermine loan takers’ well-being and promote economic stagnation, so alternative student support structures, such as Finland’s student-friendly grant system, could inspire improvement measures for the U.S.
The Growth of Education-Related Expenditures/Debt and Well-Being
U.S. students’ overall financial well-being continues to decrease, which stems from education-related budget cuts, debt, higher tuition fees, and less money in possession. Over the last decade, average tuition costs for all college types have increased by over 16% (Norvilitis & Linn, 2021). The average credit card debt among college students grew from $2.320 to $3.170 during the 2000s (Norvilitis & Linn, 2021). According to the Federal Reserve Bank, total student debt exceeded $1.5 trillion in 2019, resulting in mental stress and decreases in students’ actual savings (Norvilitis & Linn, 2021). Student loan payments have been stopped temporarily due to the pandemic, but borrowers’ duties in the post-pandemic period will make the issue more intense (Hess, 2021). Nowadays, millennials own around 5% of the country’s wealth despite representing a considerable part of the population (Norvilitis & Linn, 2021, par. 1). Therefore, increases in college fees and debt have been tremendous, threatening young Americans’ economic security.
The Large-Scale Economic Effects of Growing Student Debt in the U.S.
Student debt maximizes the loan burden on the inexperienced and relatively vulnerable workforce, promoting decreases in purchasing power and, therefore, the opportunities to engage in economic activities. Around 40% of debtors are anticipated to default on student loans by 2023 (Markle, 2019). Also, over 50% of debtors report being “burdened by their debt,” which might have implications for house-buying power in those with high monthly payments (Markle, 2019, p. 6). Notably, students’ current literacy levels are not conducive to effective loan-taking decisions. Stemming from drastic increases in average college expenses over the last two decades, around 75% of all U.S. students resort to loans, and only 20% of young loan takers instrumentalize estimated college expenses to make productive and realistic borrowing decisions (Markle, 2019). Considering the room for literacy improvements and paying capacity, the current student loan systems can suppress consumer spending, thus causing stagnation.
Feasible Alternatives to the American Approach: The Case of Finland
Contrary to the situation in the U.S., Finland’s student funding system provides non-repayable educational grants through sponsoring free secondary/postsecondary education for residents. KELA, Finland’s leading social insurance authority, funds secondary education and offers assistance as transfer payments to college students (Nordic Co-Operation, n.d.). Being enrolled in full-time programs and demonstrating steady academic progress, independently dwelling college students older than twenty are qualified for assistance for the periods of active study regardless of their families’ economic profiles, whereas the other applicants must prove the objective need for assistance (Nordic Co-Operation, n.d.). In this manner, the system’s priority-setting emphasizes low-income students’ interests while also instrumentalizing financial incentives for graduating with distinction since academic failures cause benefit termination. For college students, basic financial aid exceeds €100 monthly, and those in the Aland Islands receive up to €210 monthly as housing support payments, covering up to 80% of housing expenses (“Student financial aid rules,” 2018). Apart from assisting with tuition fees, KELA’s student-friendly policies incorporate the meal subsidy and payments for studying abroad for Finnish citizens (Nordic Co-Operation, n.d.). Therefore, Finland’s educational system emphasizes students’ financial well-being, thus investing in the country’s future workforce.
Conclusion
In summary, student debt in the U.S. has negative implications for young people’s economic health and participation, encouraging the U.S. student loan system to seek inspiration from foreign models, including the Finnish one. Adopting the Finnish approach to grant distribution or using it in hybrid models to supplement the American strategy can be crucial to improving the country’s situation. The available solutions include debt refinancing through changing the balance between educational and other expenses in budget planning.
References
Hess, A. J. (2021). 3 ways student debt impacts the economy. CNBC. Web.
Markle, G. (2019). Crushing debt or savvy strategy? Financial literacy and student perceptions of their student loan debt. Journal of Student Financial Aid, 49(1), 1-20.
Nordic Co-Operation. (n.d.). Financial aid for students in Finland. Web.
Norvilitis, J. M., & Linn, B. K. (2021). The role of student debt and debt anxiety in college student financial well-being. Journal of Student Financial Aid, 50(3), 1-23.
Student financial aid rules to ease in Finland. (2018). Yle News. Web.