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Student Debt Strangling Younger Americans

Posted by Steve Markowitz on September 21, 2014

Reason.com published some incredible and scary figures relating to student debt including:

  • In-state tuition has increased in some states from about $3k annually in 1991 to over $10k last year.
  • Private college tuition in 1983 cost about $18.5K, but by 2013 climbed to about $41K annually.
  • Between 2008 and 2013 the average tuition/fees at public four-year colleges/universities increased by 19% above the rate of inflation during that five-year period. During the same period, private colleges/universities increased by 14%, which was larger than the 9% increase for the previous five years.

The trend is unsustainable and has led to significant damage to younger Americans.  For example, between 2004 and 2013 there is been a 400% increase in student loan debts to $1 trillion. During this same period the New York Times reports that there has been an 8% decrease in home ownership among 25-34-year-olds.

The $1 trillion educational debt saddled on younger Americans will be a drain on overall economic growth for years to come. This demographic is generally a significant consumer, but will need to pay off debt rather than spend on other goods and services.

Debt BombThe educational debt bomb is a direct result of governmental intervention in higher education. The government subsidized and guaranteed student loans irrespective of ability or willingness of individuals to repay them. In addition, the easy loan policies removed incentive to students to study fields that would result in better paying jobs.

As for the educational industry, it has reaped significant benefit from governmental largess. In addition, this industry’s access to an ever increasing student base that was created by the governmental loan programs allowed the industry to become bloated and inefficient and has been a direct cause of the cost of education increasing more significantly than the inflation rate.

Irrespective of past policy failures, President Obama recommends doubling down on these programs. The President’s proposals include capping student debt repayment at 10% of their monthly income, yet another disincentive to earn more. Not only will this further increase borrowing by this demographic and result in still higher education costs, but it will also cost US taxpayers approximately $11 billion according to Politico. What a perfect calamity. When will they ever learn?

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