Student loan costs threaten the U.S. economy with many experts predicting that the more than $1 trillion in student loan debt currently outstanding will sap money from people for years to come that could be spent on other purchases. If student loans become a drag on the U.S. economy, they can threaten the global economy as well.

As the costs of college have risen, students have taken on more and more debt. One estimate of college costs says that the costs of a four-year private school education has more than doubled since 1980, while during the same period, the cost of a two-year technical school degree has risen more than 50 percent. At public colleges, the rise has been steeper. The cost of in-state tuition rose 86 percent in just the dozen years from 2000 to 2012. That rise over time has led to an increase in student borrowing, but that increase accelerated in the late 2000s because of the recession. According to a June 2013 report from the Federal Reserve, student debt was the only type of consumer debt to increase through the recession, going from roughly $550 billion at the start of the recession to more than $1 trillion at the beginning of 2013.

In recent years, the value of a degree has become more apparent, as the gap between what people can make with a high school diploma continues to lag farther and farther behind the earnings power of those with a college degree. That has meant more people going to school, including those who are less likely to be able to afford it. That happened a lot during the recession, as people who lost jobs decided to go back to school to get a degree or get another degree to try to improve their job prospects. That has led to huge debt loads among people. According to the June 2013 Federal Reserve report, more than two-thirds of recent graduates have student loan debt and the average debt is more than $27,000. That’s more than half of the average annual earnings of those graduates.

With all that student debt, recent graduates are apt to forgo spending on other things, because they have high student loan payments. There is concern in some corners, for example, that graduates will delay buying a home or may not be able to qualify for a mortgage because of high levels of student debt.

This is sure to have an effect on the U.S. economy and because the U.S. has the largest economy in the world, it will have a ripple effect on the global economy.

With a large portion of American residents saddled with student loan debt, it can mean less spending on a huge number of products, including many imports, such as cars and electronics. Those saddled with student debt may be less likely to take pricey vacations overseas.

The solutions to this problem vary. Some people argue that it’s important to keep student loan rates low because that keeps the amount that needs to be repaid lower. Others, however, argue that low rates entice more people to borrow money to go to school, including many who shouldn’t.

Another option is more loan forgiveness. Current programs that offer loan forgiveness to those who work in government or non-profit jobs require borrowers to make 10 years’ worth of payments and have pristine payment histories. Relaxing these standards would allow more people to qualify and get loans paid off faster.

Possibly the best option for reducing student loan debt is lowering the costs of college. Reducing tuition or at least stemming the huge increases would make it more affordable and lower the need for borrowing.

For anyone already in debt because of student loans and struggling to keep their head above water, there is help available at nationaldebtrelief.com.

Tagged with:
 

Leave a Reply

Your email address will not be published. Required fields are marked *