![]() ![]() In other words, while real wages are declining, the need for a college degree continues to increase, resulting in “more and more young people applying to college with fewer families able to pay for it” ( MarketWatch). This is known as the “pass-through effect” which is prevalent in expensive private institutions where universities that serve a larger population of average students continuously raise tuition to “absorb as much of the new federal money as they can” ().Īccording to Sheila Bair, a former Chairperson of the FDIC, “one of the biggest causes of the student debt crisis is that Americans haven’t seen a raise in years” (MarketWatch). In 2015, the New York Federal Reserve Bank conducted research in which they found that the “flood of easy federal money into higher education” predictably led to higher tuition and fees and “for every dollar of subsidized loans, tuition went up by 65 cents” (). Pell Grants now cover less than one third the cost of attending a four-year public school compared to the 1980s when it covered more than half the cost. There is an uneven growth between college tuition and the amount of financial aid made available to students. To start, government grants and aid have failed to keep pace with rising tuition costs. Key factors drive student loan debt nationally, making it an almost universal American experience. Ethical Issues Raised by Factors Driving Student Loan Debt Tuition Inflation A rise in delinquency rates imply that young borrowers will be economically disadvantaged, relative to previous generations, as their capacity to save and access to credit continues to be undermined by crippling interest rates. Consequences of defaulting involve damage to credit rating, garnishment of wages, and withheld tax refunds. When a loan is delinquent for 270 days, it goes into default and the borrower must pay the entire unpaid balance including any and all accrued collection fees immediately ( FedLoan). “Meantime, another three million owing almost $110 billion were in ‘forbearance’ or ‘deferment’, meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment” ( WSJ). Another 3 million borrowers who owe $66 billion of debt were at least a month behind in payments. As of January 1, 2016, 43% of borrowers were behind in paying loans or received permission to postpone repayment due to economic hardship.Ībout $56 billion in student debt is a result of 1 in 6 borrowers defaulting on their loans, meaning these loans have been left unpaid for at least a year. The rate of serious delinquencies suggests the ability of young borrowers to pay back their education loans is diminishing. ![]() Louis Fed’s Center for Household Financial Stability comment on the alarming rate of serious delinquencies noting the aforementioned “11 percent” is a generous and understated estimate considering “that many student loans are in deferment, grace periods or forebearance” (CNBC). Don Schlagenhauf and Lowell Ricketts of the St. “The current national rate of ‘serious delinquencies’ for student loans - defined as 90 days or more overdue - is about 11 percent, nearly double where it was in 2003” ( CNBC). According to the Consumer Financial Protection Bureau, one in four student loan borrowers are either in delinquency or default on their loans ( Market Watch). That intimidating figure continues to rise with each graduating class incurring more debt than the preceding class. The average Class of 2016 graduate owes $37,172 in student loan debt, up six percent from the previous year ( Student Loan Hero). To illustrate the magnitude of the student loan debt crisis, consider the following. Applying virtue ethics: the Rajat Gupta caseĪmericans owe nearly $1.3 trillion in student loan debt spread out among 43 million borrowers, putting it only second behind mortgage debt as the highest level of consumer debt.Applying Utilitarianism: Are Insider Trading and the Bailout of GM Ethical?.Early Roots of the Western Moral Tradition.Episode 3: Issue Spotting and Problem Solving.Episode 1: Financial Ethics, the Performance Enhancer.Seven Pillars Institute’s Financial Ethics Training Video Series: Ethics in Finance is Good!.Author Guidelines and Article Submission.Codes of Ethics for Financial Institutions. ![]()
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