The New Jobs Killer in the American Economy – No Not Taxes – Rising Student Debt

Idiotic Policy on College Costs Produces Disastrous Results

The failure of the U. S. economy to strongly rebound has many causes, and that in itself is a problem.  If there were just one or two causes of the problem public policy could zero in on them, fix them and everyone could all move forward.  But with a multitude of causes just addressing a few of them does not solve the problem, the remaining causes are more than capable of continuing to wreck havoc on job creation and growth.

One of these causes is the ballooning size of student loans that college graduates and attendees are incurring.  This debt has risen dramatically in the past decade, so much so that student loan debt is now higher than credit card debt.

Americans owed $904 billion in student loans at the end of March, nearly 8% more than a year ago, the New York Fed said Thursday in a quarterly report on consumer credit. That compares with the $679 billion they owed on credit cards at the end of the first quarter.

So why is this a problem?  Well the U. S. economy is driven by consumer spending.  That spending creates the demand for investment.  Without consumer spending business will not hire new employees and will not invest in new capacity, even if the capital gains tax is lowered.  And given the rising amount of student loan debt that is outstanding, new college graduates, college dropouts and even those who have been out of college for years but still have high loan balances simply cannot spend.

Going to college, gaining skills for a better job is usually a good decision.  But the benefits pay off in the long run.

"Borrowing a reasonable amount for programs that lead to degrees and certificates that are likely to improve an individual's long-term outcomes are good for the economy," said Sarah Turner, a University of Virginia economist.

In the short run in a moribund economy the costs of incurring huge debt is tremendous.

Some economists see signs of trouble. A rising number of student borrowers are behind on their payments; 9% of the total dollar amount of student loans is 90 days or more behind on a payment. Many new graduates are having trouble finding well-paying jobs even as payments come due, and a growing number of students are dropping out of school, meaning they are left with debts but no degree, recent research shows.

The problem is so great that even Mitt Romney agrees with Mr. Obama that interest on student loans should not be allowed to rise. 

This problem will not be solved anytime soon.  The practice in the U. S. of denying public colleges resources so that they have to raise tuition and fees, the practice of allowing college faculty at the senior level to work about 40% of what the rest of us do and the callous disregard of the “Greediest Generation” for the welfare of their children all means it will be decades before rational people recognize that creating huge student loan debt  so that the well off can have lower taxes is wrong. 

In the short run with huge numbers of former students using a large part of their income to pay interest and principal on student loans, rather than buying houses, buying cars, and spending money that will benefit the economy just means that the weak recovery will continue.  Thanks Conservatives.