How taking out student loans impacts — and creates — generational debt
“The haves and have-nots" is a well-known idiom that refers to those who have wealth and those who do not. Extended further, the phrase portends a larger problem — generational debt. And while “generational debt” is antonymous to “generational wealth,” more economists and educators are noticing parents who themselves continue to pay federal student loans even while their children consider doing the same or who have already done so for a college education.
In recent months, plans to forgive up to $20,000 in federal student loan debt have prompted numerous conversations. For many, the plan doesn’t go far enough and for others, the forgiveness is a step too far. Either way, the forgiveness is stuck in court even as the Biden administration has extended its pause on loan payments.
For Faith Sandler, executive director of the Scholarship Foundation of St. Louis, many conversations about student loan debt have started far too late.
“For a long time we've recognized that wealth is passed from one generation to another. We’ve failed to understand how debt gets passed from one generation to another, and in student loan debt in particular, student loan debt cannot be discharged in bankruptcy in this country,” Sandler said on St. Louis on the Air.
“To be asked to sign a piece of paper that turns out to be legally binding that can put one into debt far beyond middle age at this point, and not really understanding that your signature is binding, or what it is to pay interest on a sum of money or even what four, five, six digits mean, in a financial sense … I don't think it's common for any 18-year-old to understand leveraging money for a greater good or debt.”
According to the latest data from the Federal Reserve, 24% of Americans ages 18 to 24 are responsible for paying student loans, a percentage nearly identical to those 35 to 49. When there are federal student loan borrowers across generations in one household, meeting financial milestones and generating wealth is more difficult.
“Long-term decision making has to be put off. Major purchases, major commitments, things that build equity — financial equity, I mean, in a household or a family get deferred longer and longer,” Sandler said.
For younger generations, watching their older relatives struggle financially because of federal student loans may be a deterrent to college all together. This brings up a different struggle for teenagers as they plan their adult lives. “I think it is a fallacy to believe that anyone in this economy and in this country — at this moment — can thrive with just a high school diploma,” Sandler said. “So, some form of post-secondary education, training, purpose and path is necessary for any young person to succeed.”
Sandler said the Scholarship Foundation of St. Louis is a resource for families to navigate the constantly confusing realm of college student aid, including federal student loans. The organization hosts virtual workshops for those looking to make sense of FAFSA and incoming student aid packages from various universities — all of which share their student aid information in different ways.
“No one should try walking that path by themselves no matter who they are. … It's too much to figure out if you do not have full time to navigate all the intricacies of the system. The FAFSA itself is not that complicated if your life story fits in all the right boxes, but so many people need help understanding, ‘How does this apply to me? Help me be me in this particular bureaucracy.'”
To hear more about Faith Sandler’s predictions on the implications of the rising cost of higher education, her thoughts on the “consumer model” of financing education and Scholarship Foundation of St. Louis, listen to St. Louis on the Air on Apple Podcast, Spotify, Google Podcast, Stitcher, or by clicking the play button below.
What: Scholarship Foundation of St. Louis’ Financial Aid Basics Workshop
When: 6:30 p.m. Jan. 18
Where: Via Zoom. More information and registration at sfstl.org
If you want to share your student loan debt story as part of our coverage on generational debt, leave us a voice message at 314-382-TALK or email us at firstname.lastname@example.org.
“St. Louis on the Air” brings you the stories of St. Louis and the people who live, work and create in our region. The show is produced by Miya Norfleet, Emily Woodbury, Danny Wicentowski, Elaine Cha and Alex Heuer. Avery Rogers is our production assistant. The audio engineer is Aaron Doerr. Send questions and comments about this story to email@example.com.