Not a Student? Student Loan Debt Still Hits Home

Student debt still hits homeYou’re not a college student. You don’t have a child in college. But the escalating crisis of student loan debt still affects you, in ways large and small. In the spring of 2014 the total student debt load in the US had reached $1.1 trillion – and that burden of debt is stifling entrepreneurship, threatening the economic recovery and sparking fears of another recession.

The cost of college has been steadily rising over the past half-century or so. From lowly community colleges to prestigious Ivy League schools, institutions of higher learning have been raising tuition costs and other fees. At the same time, scholarships and grants from private and government sources have been drying up.

That means more and more students hoping to get the degree that would lead to a lucrative long-term career have had to turn to loans to get through school. Because the traditional government funded student loan programs still aren’t enough to cover all the expenses associated with college, private lenders have stepped in to fill the gap, with higher interest rates and shorter terms than the old standbys. Even Pell grants, which could support a lower-income student through a two or four year degree program at a community or small state school, are falling short, which means those students who can least afford another burden of debt are also turning to private lenders for help.

The result? On average, American students leave school with a debt load of about $30,000. And while increasing numbers of students are finishing degree programs later in life, the bulk of the burden falls squarely on the fastest growing segment of the US population: the so-=called “millennials,” people ranging in age from early twenties to early thirties.

In the traditional paradigm, these twentysomethings might have been expected to graduate, get a good job, marry, buy a house and settle down to raise a family funded by a solid career. But increasingly, economic circumstances paint a very different picture.

Student Loan Debt Stifles Economic Growth

Saddled with large amounts of debt, recent graduates are opting not to take on more – and that includes the “good debt” of a home mortgage as well as the general consumer debt of cars and other high-end purchases. Even with near record low interest rates, these young consumers are wary of taking on more debt – especially if they’re struggling with lower paying jobs than they expected to have with their degrees.

Fewer home sales and consumer purchases mean a sluggish economy overall. What’s more, the student debt problem also ripples through the world of employment, with serious implications for job growth and new startups. And that in turn affects the country’s global competitiveness and ability to innovate.

Student Loan Debt Crushes Employment Opportunities

The problem of student loan debt affects the job market – eve among those who don’t go to college. A recent study found a relatively large subgroup of individuals who could go to college but are choosing not to, precisely because they don’t want to take on the burden of thousands of dollars in debt. Instead, they settle for whatever lower-wage jobs they can get with less education. While some may advance to better opportunities and better wages, most don’t.

Another group often overlooked in studies of student debt includes those who enroll in college, but then drop out – usually after they’ve gotten financial aid to attend. These individuals are left in worse trouble than those who do finish. Not only do they end up without a degree and with limited job options, they’re faced with repaying the debt they’ve incurred.

Among students who do finish their degrees, competition in some fields is fierce, leaving many still stuck in low-wage jobs that aren’t connected to their field at all. The old cliché of the PhD driving a taxicab isn’t far from the truth. Limited financial options leave more and more of these new graduates living with family or friends in an effort to make ends meet.

For many, the threat of post graduation debt affects the choice of career, too. Students increasingly gravitate toward majors that promise higher paying jobs upon graduation, such as business or law, rather than the ones that lead to public sector or nonprofit work, like social services ad education. That leads to potentially damaging shortfalls in those key areas.

Even if they are able to land a reasonably well paying job in their chosen field, some of these graduates can expect to be paying down their loan debt for the rest of their working lives. Student loan debt isn’t discharged in bankruptcies, so many simply default – and the resulting blot on a credit report can chill any other efforts to take out a loan.

Student Loan Debt Affects US Global Competitiveness

The student loan crisis isn’t just choking the economy at home. Much of the country’s job growth comes from startups and new small businesses. But recent graduates coping with heavy debt loads may not want to – or be able to – take on the additional debt needed to launch a business. That means that good ideas go undeveloped, key innovations never get off the drawing board, and bright thinkers don’t get the support they need to keep the country ahead of the curve in a competitive global market.

A Turning Tide?

Recognizing the problem is the first step toward fixing the problem, and new – and old – efforts to tackle the student loan debt problem are trying to do just that. New programs aim to help money strapped students understand the loan process. Lower cost online programs aim to make the cost of an education cheaper. Some colleges have even (gasp!) scaled back on some fees and charges, and made more scholarship aid available.

Still, that $1 trillion in student debt won’t go away quickly. As Jason Hartman says, awareness is the key to making changes — and it doesn’t take a college degree to see that student loan debt affects us all.

Read more from The American Monetary Association:

The Future May Be Brighter Than You Think: Here’s Why

Bitcoin for Real Estate: A New Frontier

The American Monetary Association Team

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