College Guide

Blog

April 05, 2012 5:03 PM The Student Loan Problem

By Daniel Luzer

Could student loan debt “derail” the U.S. economy? That’s possible, argues former U.S. Labor Secretary Robert Reich. According to a piece at CBS News:

Though it’s not a financial crisis now, it could be if the level of student debt continues to mount as it is now… Reich said Wednesday on “CBS This Morning.”
Reich, who teaches public policy at the University of California, added additional education debt is a growing problem. “A lot of students cannot get jobs in this economy,” he said. “They have gone into additional education because they couldn’t get jobs, but now they’re finding that they have more debt they have to pay off, and that additional education, although it will pay for itself over the long-term, right now is a huge debt burden.”

The biggest problem seems to be that people who spend a great deal of their income servicing loans can’t really do the normal things people do with their lives that help fuel recoveries. They don’t build houses or buy new cars, they don’t start businesses. They’re even slower to have children, which end up fueling economic recoveries a great deal

Still, notably missing from this discussion is any real picture of that what this problem actually looks like. A whole bunch of people servicing student loans is burdensome, for sure, but it’s not actually “derailing the economy;” it’s just possibly preventing any major upturn.

This surely isn’t good for America’s finances, but Americans have been worried about the dreaded crisis in student loan burdens for almost 30 years. And the bottom never seems to drop out.

The average student loan debt per borrower is now $25,000. How high would it have to go to create a real financial crisis?

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

Comments

  • Craigie on April 05, 2012 11:52 PM:

    I've respected Robert Reich immensely since I read his books in college; I even contributed to his quixotic campaign for governor. He's barking up the wrong tree here. Student loans are not a problem. They are a symptom. And the differences between today's student loan situation and 2008 mortgages are so extreme that someone with no training whatsoever could see there is no "bubble."

    The average student loan debt per borrower is much less than $25,000. It is $20,000 for those who graduate with a bachelor's degree which, statistically, is a small subset of those who owe money on student loans at any point in time. You have drop-outs, stop-outs, people who just started, etc., not to mention those who are graduating but with associates degrees and short-term certificates rather than four-year degrees. The mainstream media likes to focus on "graduating seniors" because most reporters and editors today are required to have a bachelor's degree. It represents a tiny slice of the undergraduate population at any given time, though.

    And we aren't even reducing the average with all the zeros -- those who borrow nothing. The stats typically exclude them, although the numbers are available.

  • nicolezcobb on April 06, 2012 5:52 AM:

    Though loans may be more difficult to get than a few years ago,Refinance is still helping plenty of people. It's back to common sense underwriting, and guidelines to make the refinance possible for you.