THE STUDENT DEBT BOMB

Joseph Lawler, Washington Examiner, Dec 8, 2014

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tudent debt has reached $1.1 trillion. On top of that, student debt is a leading concern for millennials, which has made it a focal point for politicians seeking young voters. Some believe that this is a bubble that will lead to another recession, while others think it will cause long-term economic growth to slow, hindering young people’s ability to buy homes or start families. The real problem is that of indebted dropouts. Millions have taken out student loans only to leave school without the degree that would have given them the earning power to pay off their loans. Rohit Chopra, Assistant Director of the Consumer Financial Protection Bureau (CFPB), testified to Congress that student debt is harmful, in that it slows household formation and business creation, while making it more difficult to plan for retirement.

Furthermore, student debt has almost quintupled since 2004 when it was at about $250 billion. However, student debt cannot be considered a bubble because the value of a college degree is worth taking out a loan. This is supported by a study which found that, from 1980 to 2010, the cost of college rose 50%, while earnings from a college degree increased 75%. Still, the real issue is that 60% of student loan defaulters did not graduate, while almost all the other 40% had just a certificate, not a degree. This is mostly concentrated at for-profit colleges that have low completion rates. On top of that, graduates from these colleges have difficulty finding employment. Because of this, the CFPB has taken regulatory action against some of these for-profit colleges.

Get in deeper:
Watch: Here’s What’s Truly Frightening About The Student Debt Bubble

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The plague of student debt is, therefore, likely both to lower GDP growth as it acts as a drag on the spending of those who were willing to take the plunge and reduce national human capital formation because of those who were not.John T. Harvey, Forbes, April 28, 2014
Peter Jacobs, Business Insider, March 5, 2015
Paul F. Campos, The New York Times, April 4, 2015
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THE STUDENT DEBT BOMB

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