Student Loan: A ticket towards future prosperity or $1.7 trillion debt trap?

By Theodora Lau and Bradley Leimer of Unconventional Ventures 

Is attending university a ticket towards future prosperity or an eternal debt trap? 

In the United States, that is a $1.7 trillion question. 

Make no mistake, we are not disputing the need to pursue tertiary education, nor the intellectual benefits that stem from it. But skyrocketing tuition coupled with systemic economic inequality have resulted in more than 45 million Americans bearing $1.7 trillion student loan debt. Not only is this figure staggering; it is growing. 

While student loan debt burden spreads across all demographics in the U.S., it is also a racial and economic justice issue. Studies have demonstrated that the debt problem overwhelmingly impacts women, Black, and Latinx borrowers the most. According to EducationData.org, “Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates.” 

Not only do they tend to borrow more, they also face a significant wage gap post graduation, making it harder to repay the debt. Struggles with student loan debt has repercussions on the mental and financial well being of these disadvantaged demographics through different life stages, from homeownership to marriage and starting a family.  

This creates a vicious cycle, where students without access to generational wealth have less opportunities to own a home or invest — both being crucial tools to build wealth and savings for the next generation. No wonder the U.S. has the lowest economic mobility among all developed nations. It is — after all — by design.

Forging a pathway out of the debt cycle will require actions on multiple fronts. While student debt forgiveness will greatly help to alleviate immediate stress for some borrowers, they do not solve the root cause of the problem. Without the proper reforms and intentional efforts to help disadvantaged Americans build wealth and attain economic parity, we will end up with another $14 trillion debt in no time.

Here are a few thoughts to consider:

• Opportunities for entrepreneurship — To foster economic mobility, we need to provide career pathways for people to succeed. For far too long, founders from communities of color have been shut out of the innovation economy, without access to much needed capital, since venture capitalists typically like to fund problems that they can relate to. “The share of U.S. venture capital going to Black-founded companies stood at just over 3% of the $147.6 billion of 2020’s overall deal volume,” according to Reuters; per U.S. Census data, 10% of U.S. companies are Black-owned. While attempts have been made by a few high profile firms recently, closing the access gaps will require more sustained commitment than one-off PR campaigns. Inclusion — as Backstage Capital and Kapor Capital have both demonstrated — must be intentional.   
• Workforce development — To tap into a larger pool of talent and uplift the economy, we need to change our approach to learning, and implement initiatives that encourage and foster lifelong learning — outside of our traditional four-year college paradigm. According to EducationData.org, a third of college freshmen drop out before their sophomore year. We are long overdue for different career pathways for workers to succeed in this digital era. New hiring practices that recognize skills gained through trade schools, bootcamps, and apprenticeship programs can open the doors to millions of capable workers, and help to improve workforce diversity. There is, after all, more than one path for a successful career.

Which brings us to, what is the role of financial services in this debacle? Surely it’s not just to offer yet another loan to cover the mountain of debt? When was the last time you saw a bank actively helping a customer pay down their debt — and stay out of debt? 

Empowering consumer well-being should not be an afterthought, but the heart of every financial institutions’ business model. Surely we can find ways to add both value and create a profitable business that excludes perpetual debt, can we not?

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In this episode of our #OneVision podcast, Theodora and Bradley chat with Tobin Van Ostern, founder of Savi, a public benefit corporation focused on tackling the student loan challenge faced by America's 46 million student loan borrowers. While policy reforms are long overdue, we believe that private sector innovation can still play a crucial role to provide much needed immediate relief. You can find this conversation on Apple Podcast, Spotify, and other players. Please consider subscribing, and please let us know what you think in the comments. Sponsorship opportunities for #OneVision are available. 

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Unconventional Ventures helps drive innovation to improve systematic financial wellness. We connect founders to funders, provide mentorship to entrepreneurs, strategic advisory services to a broad set of corporates, and broaden opportunities for diversity within the ecosystem. Our belief is that anyone with great ideas should have a chance to succeed and every voice should be heard. Visit unconventionalventures.com to learn how you can partner with us.

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Our new book, Beyond Good, is now available for pre-order at Kogan Page. It will be released March 3, 2021 in the U.K. and most of the globe, and on March 30, 2021 in the U.S. 

Beyond Good is a call to arms for business leaders to recognize how they can do well by doing good. Business for good, which is the philosophy that you can pursue profits while delivering on sustainable and societal development goals, is already delivering big changes. With exclusive interviews with experts from the B-Corp world, policy makers and executives, this book also showcases how companies like Microsoft, Flourish Ventures, Ant Financial, Sunrise Bank and Paypal are doing their bit to make our world better — and you can too. 

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