Do we have a student loan crisis?

by Grace

While it’s unlikely that student loans on their own have created a crisis, they do seem to be a drag on our struggling economy.

When the The Atlantic looked at the student loan “crisis”, some of the numbers are alarming.

… The cost of college has spiked 150 percent since 1995, compared with a 50 percent increase in the cost of other goods and services. Last year, outstanding student loans soared to nearly $1 trillion—a 300 percent jump since 2003. College is an undeniably risky investment, seemingly more so than ever. But are rising debt levels a national crisis?

But their infographic presented a more balanced look at some of the numbers, with the first three sections making the argument that the averages do not support the idea of a crisis.

20130420.COC.CollegeDebtMyth1


Not a crisis, but problematic for a struggling economy

Updated 2012 numbers from the Federal Reserve Bank of New York report

The paper starts by noting that student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.

Younger Americans with student debt are less likely to buy homes and automobiles, holding back spending that has typically fueled past economic growth.

… it looks like rising student debt really might be eating into the housing and auto markets. If so, that could have big implications for the U.S. economy. Auto and housing sales have been a huge driver of growth these past few years, though auto sales are still well below their peak. (Analysts are expecting around 15 to 15.5 million sales in 2013, versus an average of 16.6 million per year during the 2000s.) If younger Americans are retreating from those markets, that could help slow down the recovery.

Related:  College debt levels higher than all other types of consumer loans (Cost of College)

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5 Comments to “Do we have a student loan crisis?”

  1. Maybe there’s less concern because people only get car loans after they’re deemed to be credit worthy, which is not the case for student loans.

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  2. According to http://www.cbsnews.com/8301-505145_162-57568254/u.s-consumer-debt-rises-on-student-auto-loans/
    car loan debt in Sept 2012 was $750billion, while student loan debt was $956billion, so it looks like people are getting more into debt for student loans than for cars.

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  3. Another data point
    Millennials are behind the wheel much less:

    Between 2001 and 2009, the average yearly number of miles driven by 16- to 34-year-olds dropped a staggering 23 percent. The Frontier Group has the most comprehensive look yet of why younger Americans are opting out of driving. Public transportation use is up 40 percent per capita in this age group since 2001. Bicycling is up 24 percent overall in that time period. And this is true even for young Americans who are financially well off.

    Derek Thompson finds that young people “have swapped student loans for mortgage and auto loans”:

    They’ve traded cars for college and homes for homework. And that’s okay! Compared to cars and houses, higher education is a much safer investment. For all the media criticism about college losing its luster, you could make a good argument that it’s never been more important. While the returns to college have flattened recently, wage growth has been even weaker (or negative) among non-college grads. As a result, the “bonus” that young workers get from going to college, which economists call, the “college premium,” has tripled in the last 30 years. Today, the share of the 18-24-year-old population enrolled in school is at an all-time high 45 percent today.

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  4. Aggregate Student Loan debt was bound to overtake Aggregate Car Loan debt. Student loans have a much longer repayment period so the aggregate balance accrues faster than it does for car loans.

    Also, I’m not sure we can completely blame student loans for the changes in the auto and mortgage markets. It’s relatively easy to get a student loan credit-wise. Mortgage and auto lenders have tightened their approval data. Also, there is research out there that shows the “Millenials” are more reluctant to take on debt in general than their parents. I’m not sure correlation is causation here.

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  5. The decreased driving rates might well be a factor here, which could be a restrictive factor in the auto industry’s growth. Maybe those Google driver-less cars will create an economic revival of sorts.

    “Compared to cars and houses, higher education is a much safer investment.”

    It depends. The college premium varies significantly depending on several factors, and for some individuals a dependable car that gets them to their job might be more valuable than a college degree.

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