Why College Student Debt Is Growing

Why College Student Debt Is Growing There is now more accumulated student loan debt than accumulated credit card debt for the first time in the United States, according to an article in the New York Times. Accumulated student loan debt will likely reach a trillion dollars this year, as more students are enrolling in colleges and borrowing government dollars. However, economists argue that this is actually a good sign and could boost the economy as students pay back loans with interest. They believe that its a healthy investment that will lead to higher earnings, unlike credit card debt, which only hurts consumers budgets, giving them less disposable income to put back into the economy. But, this increase also means that more college graduates will be repaying debts and repaying them longer. In 2008, two-thirds of bachelors recipients graduated with debt, compared to less than half in 1993. In 2010, the average student debt (for those who took out loans) was $24,000. This average has been rising consistently and even faster for students and graduates of for-profit colleges. In 2000, accumulated student debt was slightly under $200 billion and was barely a factor in overall household debt. Many expect student loan debts to increase rapidly in the next few years as tuition at public colleges rises because of tighter state budgets that will likely decrease their college funding. Also, it looks like Pell grants may be cut, which offer the largest amount of financial aid to low-income students. In the coming years, a lot of people will still be paying off their student loans when its time for their kids to go to college, said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com. Kantrowitz has compiled student debt estimates for federal and private loans. Increased debts could create larger, macro issues as well. People are now taking longer to transition from adolescence to adulthood, as they get married, buy homes and have children later on in life. Larger debts can only slow down this process. Yet, receiving a college degree still yields significantly higher returns even if student debt is incurred. In 2008, full-time employees working year round who had bachelors degrees earned a median of $55,700, which was $21,900 more than the median earnings for just high school graduates. Also, the unemployment rate was significantly lower for college grads. The Obama administration alleviated some of the pressures of student debt in 2009 as it made it easier for low-earning graduates to get out of debt. It created an income-based repayment plan for students that also forgives remaining student debt after 25 years for those who put at least 15 percent of their income toward their debt consistently. Those who work in public service get debt forgiveness after 10 years.