The failure of the
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. U. S.
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
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. New York
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
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.