Student Loans and the Economy

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Historically, most people, no matter their income, graduated from college with no debt. This was the reason a college degree used to be such a prime mover in terms of social mobility. You graduated from college, you got a job, you made money. But now people so often assume debt to go to college that they graduate with a negative balance, which has a dramatic ability to dampened the amount of money they can spend and earn as young adults. Apparently they have more debt than ever before.

The Institute for College Access & Success’s Project on Student Debt issued its annual report (pdf). The report says:

Nationwide, average debt for graduating seniors with loans rose from $18,650 in 2004 to $23,200 in 2008, or about six percent per year. State averages for debt at graduation in 2008 ranged from highs near $30,000 to a low of $13,000. High-debt states are concentrated in the Northeast, while low-debt states are mostly in the West.

The debt has an adverse effect on the U.S. economy. Lauren Asher, president of Institute for College Access & Success, argues that argues that “Both state and federal policy-makers need to think about the implications of a generation of college graduates paying off student loans instead of buying houses, starting businesses or saving for retirement.”

That is the real problem with student debt. Many bemoan the low savings rate in the U.S. but the increase in student debt almost certainly acts to derail people from really making serious financial savings. This consideration starts to make college seem like a risky investment.

Daniel Luzer

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