The Debate over Student Debt

This is a chart from the Federal Reserve Board in New York representing household debt in the U.S. in the third quarter of 2014:

Household Debt 2014 Q3

Over the last decade, student debt has clearly increased both in raw dollars and as a percentage of household debt. The implications of that increase have, however, been much less clear than the increase itself—at least to the “experts” who report on our economy.

What follows is a sampling of news stories related to the rise in student-loan debt that have appeared over the last six months:

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STUDENT DEBT REMAINS A LOOMING ECONOMIC CRISIS

“Student Loans: America’s Next Financial Crisis”

By Anthony Figliola. HuffPost Politics 17 Oct. 2014.

http://www.huffingtonpost.com/anthony-figliola/student-loans-americas-next-financial-crisis_b_5999948.html

“As high-school juniors and seniors start their search for the college where they will spend the next four years of their lives, they need to take a long, hard look at how to pay for it.

“Education is the one of the most important pillars on which our American democracy stands, and many of our higher-education institutions are world-renowned. However, the pursuit of a good education has been corrupted in recent years by greed in the form of glossy advertisements pitching students the chance at a wonderful future while hiding from them the true cost.

“During the last 30 years, the cost of obtaining a college degree has risen an inconceivable 1,120 percent. In comparison, housing costs have risen 175 percent, and the cost of medical care has risen 454 percent, according to the U.S. Bureau of Labor Statistics. In May, the New York Federal Reserve posted its quarterly report on U.S. household debt, and to no one’s surprise, college loans topped the list at a whopping $1.1 trillion — the largest ever recorded. With these mounting educational costs comes an increase in student-loan defaults. So many people have high student-loan debts, and there can be no doubt that another financial crisis is on the horizon.

“Why has the cost of obtaining a college education risen beyond the stratosphere? The answer is twofold: overly generous lending similar to what led to the 2008 mortgage crisis, and slick marketing that takes advantage of it.”

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ELEMENTS OF THE STUDENT DEBT ARE UNSETTLINGLY REMINISCENT OF THE SUB-PRIME MORTAGE CRISIS

“Student Loan Market Recalls Sub-Prime Crisis for U.S. Treasury”

by Jeanna Smialek. Bloomberg News 6 Nov. 2014.

http://www.bloomberg.com/news/2014-11-06/student-loan-market-recalls-subprime-crisis-for-u-s-treasury.html

“The Treasury Department is looking at the rise of American student-loan debt and seeing worrying similarities to the U.S. housing-market bubble.

“Deputy Secretary Sarah Bloom Raskin today voiced concern that education-loan borrowers could turn to repayment scams resembling mortgage-payment schemes from 2009 and 2010. Her remarks come a day after a Treasury committee report drew parallels between student-loan default risks and the mortgage market before housing collapsed starting in 2006.

“’Millions of student-loan borrowers are in default on their student loans; many more could face default in the near future,’ Raskin said today in Tampa, Florida, during her third public speech on student debt since becoming the Treasury’s No. 2 official in March. ‘I worry about the emergence of a student loan “debt relief” industry.’”

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THERE IS NO IMMEDIATE CRISIS RELATED TO STUDENT DEBT OR ANY POTENTIAL FOR A CRISIS COMPARABLE TO THE SUB-PRIME MORTGAGE CRISIS

“Why Student Debt Won’t Cause the Economy to Collapse: Student Loan Debt Has Grown Quickly but There’s No Danger of a Systemic Crisis, according to a New Report”

By Allie Bidwell. U.S. News 4 Aug. 2014.
http://www.usnews.com/news/articles/2014/08/04/student-loan-debt-is-bad-but-theres-no-bubble-to-burst
“Student loan activists like to compare the debt situation to that of the mortgage crisis that caused a bubble to burst and sparked the Great Recession, but some analysts say the only similarity between the two is rapid yearly growth in debt.

“Student loan debt has doubled since 2007 and has had a five-year average growth of 11 percent, compared with 12 percent for mortgage debt during the peak debt level, according to a new report from The Vanguard Group. Several policymakers and advocates have also said the increase in the number of debt relief scams and fraud complaints, as well as problems with the servicing market, are reminiscent of the home loan crisis.”

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FACTORS CONTRIBUTING TO THE STUDENT-DEBT CRISIS ARE EASING SOMEWHAT

“Student Loan Debt Keeps Growing, but New Signs of Hope”

By Scott Cohn. CNBC 13 Nov. 2014.

http://www.cnbc.com/id/102179079

“For the first time, the average student loan debt has topped $30,000 per graduate in several states. But there are also signs the $1 trillion crisis is easing, according to two reports released Thursday.

“The Oakland, California-based Institute for College Access and Success (TICAS) says the average for the class of 2013 topped $30,000 in six states, with others not far behind. The average debt nationwide in 2013 was $28,400, TICAS said, up 3 percent from the year before.

“The nonprofit organization’s ninth annual report, “Student Debt and the Class of 2013,” finds 69 percent of graduates left school with at least some debt.

“’It’s getting harder and harder to graduate from college without debt,’ Lauren Asher, president of TICAS, told CNBC. . . .

“The TICAS report and a separate report from the College Board say there is some reason for hope among college grads, as the job market starts to improve and tuition increases slow—and in some cases actually reverse.

“And although college tuition is still increasing more than overall inflation, the College Board’s “Trends in College Pricing 2014” says schools are starting to hold the line on tuition.

“’These price increases are lower than the average annual increases in the past five years, the past 10 years, and the past 30 years,’ the report says.”

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THE STUDENT-DEBT “CRISIS” IS BEING MANUFACTURED

“The Student Debt Crisis Is Being Manufactured to Justify Debt Forgiveness”

by Jeffrey Dorfman. Forbes 3 July 2014.

http://www.forbes.com/sites/jeffreydorfman/2014/07/03/the-student-debt-crisis-is-being-manufactured-to-justify-debt-forgiveness/

“A Google search for student loan crisis returns 12,100,000 items, most of them bemoaning the crushing debt of today’s students and demanding action to address the problem. The Huffington Post even has a special page collecting the dozens of articles it has published under the heading of “Student Loan Crisis.” There is a non-profit named Student Debt Crisis. Articles have even blamed the rising student debt load for a fall in housing demand among younger buyers. Yet, an unbiased look at the data suggests there is no student loan debt crisis.”

 

3 thoughts on “The Debate over Student Debt

  1. How to perceive the current situation? Do you have to sell your parents house just to pay your student debts? As a recently graduated student from Europe, I cannot possibly imagine that I would have to pay for my education in the same way I would pay for my mortgage. It is especially sad when you realize that US spends insane amounts of money on the military, and leaves sectors of public education and social services heavily lacking behind. The worst thing of all – it does not matter who you vote for. Obama does not represent the slightest change to Bush in these terms. There are wars all around the world, yet people from middle class find it more and more difficult to pay for their education. This is what McMurtry calls The Cancer Stage of Capitalism.

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