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October 20, 2011 2:45 PM A Trillion Dollar Education

By Daniel Luzer

Student Loan debt will high a new high mark in a few months. According to an article by Jenna Johnson in the Washington Post:

The total amount of student loan debt is expected to hit one trillion dollars before the end of this year, according to financial analysts, marking yet another milestone as Americans take on more and more debt to get an education.
Last year the amount of student loans surpassed credit card debt. And while consumers are paying down their credit cards and home loans… outstanding student loan debt has doubled in the past five years. (And keep in mind that many people leave college with student loans and credit card debt.)

Student loans surpassed credit card debt when it hit $829 billion last August.

Total education debt grows by about $2,853.88 every second. USA Today reports that “Students with loan debt often delay major life events” like buying a house or having children. Well, right.

Such outstanding debt acts as a huge drag on the economy since it eats up so much of college graduates’ disposable income. This is income that they would otherwise spend on American goods and services or invest in American businesses.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • Jimo on October 20, 2011 5:46 PM:

    If the Dems in 2009 had really wanted to stimulate the economy (rather than just bail out the banks and reward traditional Democratic constituencies) they'd have set up a multi-year plan that traded the Treasury "making" the scheduled student loan payments of these millions of persons if the borrower didn't make any payments during this period (and one hopes spent rather than saved the unpaid student loan payments).

    Such an approach, much like unemployment benefits, would have instantly stimulated consumer spending (young people are precisely at the maximum spend vs. save point in their lifetimes) or enabled them to save to buy a home (what normally immediately follows on the downside of the apex of the spend vs. save curve).

    But hey, can't let someone get something for nothing (even if that is something that benefits society at large and shouldn't singularly be the financial burden of just the student).

  • Rob on October 21, 2011 11:55 AM:

    Such outstanding debt acts as a huge drag on the economy since it eats up so much of college graduates’ disposable income. This is income that they would otherwise spend on American goods and services or invest in American businesses

    So I guess the same logic applies to people when they take out a mortgage? How about the Treasury make my mortgage payments for a couple of years -- I'll gladly spend most (factoring in the loss of my tax deduction for interest) of it as well!


    C'mon -- Borrowing to pay for education is an investment; statistics show there is a lifetime income premium for those with college degree versus non-college degree -- and the NPV of the benefits to cost is positive (on average -- there are of course some students who fail to graduate).

    And I would think the maximum spend to save standpoint is when you are a senior citizen - maybe it's on different things than I can enjoy now, but I plan on have a marginal propensity to consume close to 1 when I'm old!

  • Daniel on October 21, 2011 12:36 PM:

    Not quite. Paying for housing is an essentially permanent part of the human condition. People who don't have a mortgage still have to pay rent.

    Education, in contrast, is not always something people have to buy individually, or buy at such a high price. Sure higher education allows people to make more money, but it always did.

    There is a lifetime income premium for those with college degree. There is not a lifetime income premium for those with college debt. The increasing cost of education forces people to take on higher and higher levels of debt to pay for it. Is higher average debt leading to higher average salaries?