This
article brings an insightful view of how student loans might be impacting the
economy. The article talks about how in the third quarter of 2013, the student
loan debt was a massive $1 trillion, which since then till today has increased
by 11.8%. The New York Federal Reserve believes that this increase in student
debt can be harmful to the economy because, "People
can have trouble with the student loan debt burden—unable to buy cars, unable
to buy homes—and so it can really delay the cycle.” The
article also had an interesting perspective on how a student loan is linked to
the university a student attends and the major they are pursuing.
However,
if the US department of education decreases student loans wouldn't there be a
increase in the unemployment rate and the Labor Force Participation rate
because there is a shortage of skilled labor which in turn can have an impact
on economic growth? Could one possible way to combat the problems associated
with high student debt be decreasing the cost of attending a public university?
Link:https://www.bloomberg.com/news/articles/2014-01-16/student-loans-the-next-big-threat-to-the-u-dot-s-dot-economy
5 comments:
I found the questions you asked at the end of your summary very thought provoking. If the US Department of education decreases student loans there would be a shortage of unemployment in high education roles i.e. Doctors and lawyers. However, there is currently a shortage of skilled labor (welders, carpenters, plumbers etc) so there is a change that if the US Department of Education decreases student loans, students might go to technical schools and receive degrees in other fields.
Additionally, in today's world it is understood that everyone should be seeking a mater's degree after college, if student loans decrease the necessity of needing a master's degree might no longer be necessary and thus not as many loans would be necessary.
The author of this article points out that the chief Economist at Wells Fargo, is not hesitant to give pre-med and engineering students loans because there is an assumption that they will make a higher salary. While students who study French and social welfare shouldn't receive as high of loans. This greatly affects a student's ability to choose what to study and their freedom based on the assumed salary potential. This notion can greatly affect the economy because if people are not studying social welfare than no one will be educated in that job field. Everyone needs to be doctors and engineers just to receive a loan to go to college.
It's interesting to note that the increasing costs of public universities in America is generally justified by administrators by saying that college tuition must meet the rate of inflation. However, Ray Franke, a professor of education at University of Massachusetts, Boston, in a 2015 cnbc article, has stated that the rate of rising tuition costs has been roughly six times that of inflation.
Data such as this does nothing but encourage the prevailing sentiment that administrators might use the liberty with which banks hand out loans to drastically raise prices on a service that is seen by most as more or less of a necessity that should be acquired by any means.
With that being said, this issue seems to have dug itself deep into the field of higher education to the point that institutions might need rising, overpriced tuition in order to keep their doors open. We can see evidence of this in the attempted closure of Sweet Briar College in 2015 due to declining enrollment and a dwindling endowment. It seems as though higher education is in a position that won't allow for substantial change unless the government could establish some form of improved regulation for the distribution of student loans.
I think you make a very interesting point, Elise, when you bring up the idea that students will be incentivized to become doctors and engineers based on their abilities to obtain loans. I predict that we will start seeing some gaps in the availability of people to fill certain professions. However, I will be interested to see if those gaps will be filled eventually by market forces, or if the government will be inclined to step in to provide loan forgiveness, lower the cost of higher education, or provide assistance via some other method.
Education, particularly students' abilities to afford higher education varies greatly from country to country. On the other side of the scale in Sweden, tuition is free, but taxes are high and rent, food, and costs of living are forces to be reckoned with. Though I agree that student debt can and does get in the way of the post-graduate "American Dream," I am not sure if there is a perfect model out there that I would recommend.
The student loan crisis is a complicated one for sure. Going to college has become synonymous with the American Dream, and the job market for well paying jobs not requiring a college degree is certainly shrinking.
While this is a multi-faceted issue that will not be fixed by one simple solution, there are some policies that I think would be helpful. For example, there needs to be more education about student loans given to those thinking about taking them out. Private banks often prey on those desperate to go to college but are in need of loans, and these teenagers have no idea how to appropriately use loans to their advantage. Although certainly not a fix-all, at least these young students can have a healthy appreciation for the loan they are about to sign off on, and an often very damaging information gap can be closed.
In today's job market the value of the undergrad degree doesn't go as far as it used to, these days getting a some sort of post graduate degree be it a PhD or masters is the way to earn jobs with better salaries. The Trump Administration has so far been quiet on this topic, while Michelle Obama advocated for making college more affordable that way people didn't feel like they were spending their entire lives paying off loans. Trying to form policies around helping students with providing cheaper loans comes at a cost and whether or not the government is willing to take a hit on the economy is the question. It'll be interesting to see what direction the current administration will go in on this issue.
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