Wednesday, June 11, 2014

How Rising Student Debt Affects The Economy

This editorial describes the executive order by President Obama, that will make it easier for students to service their debt.  Student loan debt has doubled over the last seven years.  The 10% growth rate in student debt is due to rising costs at state universities, which educate 70% of our students, and the lack of family resources to meet the rising costs of education.  This has created two problems that have a serious impact on the economy.  Students who default on their debt lose access to credit and  find it more difficult to find jobs.  But graduates who are able to service their debt also have problems. They have less money to spend on other things.  Household formation is less rapid than it has been in the past, and spending on consumer durables has also declined.  The student debt burden has been bad for the economy.

The efforts to ease the student debt burden are worthwhile but it does not address the real problem.  The cost of attending college has been rising and median family income growth has been stagnant for decades.  Many families are caught in a trap.  A college degree has become a necessary, but not sufficient ingredient for a career,  but it has become less affordable for many families.

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