Will a Student Loan Debt Crisis Sink the U.S. Economy? - 1 views
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Student debt has more than tripled since 2004, reaching $1.52 trillion in the first quarter of 2018, according to the Federal Reserve — second only to mortgage debt in the U.S. College costs have outpaced the Consumer Price Index more than four-fold since 1985, and tuition assistance today is often harder to come by, particularly at schools without large endowments.
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About 44 million graduates hold student debt, and today’s graduates leave school holding promissory notes worth an average of $37,000, raising concerns that the burden is creating a cascade of pressures compelling many to put off traditional life milestones
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The storyline, as it has emerged, is that college debt delays buying a house, getting married, having children and saving for retirement, and there is some evidence that this is happening.
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But the truth is more nuanced, and, statistically at least, the question of how burdensome student debt is and the extent to which it is disrupting major life events depends on a number of factors, including when you graduated from college with debt.
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For those who graduated with debt as the economy was crashing, it was a double-whammy, said Keys, “so you’re seeing delayed marriage, delayed child-bearing, which are at least in part a function of the ongoing damage from the Great Recession.
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Before the Great Recession, student debt levels were below auto loans, credit card debt and home-equity lines of credit in the ranking of household debt. Since then, student loan debt has surpassed these other debts
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A $1,000 increase in student loan debt lowers the homeownership rate by about 1.5 percentage points for public four-year college-goers during their mid 20s, equivalent to an average delay of 2.5 months in attaining homeownership,
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Individuals who attain higher education average higher salaries, which translates into a higher tax base. With higher levels of education attainment, there is also less reliance on social welfare programs, as individuals who attain higher education are more likely to be employed, less likely to be unemployed, and less likely to be in poverty. Higher levels of education are also associated with greater civic engagement, as well as lower crime.”
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In 2014, the largest chunk of student debt — nearly 40% — belonged to people owing between $1 and $10,000.
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The bigger problem, Webber said, comes when students take out loans and then don’t graduate from college
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Nationally, 60% of people who start at a four-year institution wind up graduating within the next six years
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There are other ways in which all debt is not created equal. “Many of the people who have the largest loans and are the most likely to default are also the people who got the worst credentials and poorest quality training when they graduated or potentially didn’t even graduate
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But although $1.5 trillion is a big number, it may not be an unreasonable amount given the value it is creating
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In 2002, a bachelor’s degree holder could expect to make 75% more than someone with just a high school diploma, and nearly a decade later that premium had risen to 84%
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Australia has a system that links the repayment of loans with the tax system. “Income-driven repayment options have been created in the U.S.,” said Perna, “but these options are more cumbersome and administratively complex than in Australia and some other nations. By linking the amount of the monthly payment to an individual’s income, income-driven repayment options can help to protect borrowers against the risk of non-repayment. But a more seamless system wouldn’t require borrowers to annually report their income to the U.S. Department of Education
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“Right now there is, frankly, very little accountability that schools have; they practically have no skin in the game. If students default on their loans, there is no bad effect for the school.”