American Student Assistance (ASA) believes that student debt might actually be hindering the economy instead of helping it.
Many students take out loans, but aren’t making enough money after graduation to support themselves. This leads to a vicious cycle, and many students are unable to pay back their debt, according to ASA.
ASA also reports that high debt directly correlates to a student’s ability to actively participate in the economy. Student debt delays their ability to purchase a car or a home, open a small business or even start a retirement savings.
The Chronicle of Higher Education states that the amount of student loan debt is greater than what students are making after graduation. Because of the effect student loan can have on other aspects of their lives, the circumstances are becoming known as the “Domino Effect.”
“Monthly student loan payments deplete consumer savings, and prevent other types of spending,” reports the Chronicle.
“These students are not as likely to take financial risks and help boost economic growth,” reports the Consumer Finance Protections Bureau.
“Falling behind or becoming late on the student loan payments can have a negative effect on credit score, which will, in turn, make it even harder to buy a home,” said Greg Richey, CSUSB professor of finance.
The Campaign for College Opportunity (CCO), a California non-profit organization that motivates students to attend college and be successful, reports that student loan is greater than the combined amount of mortgage, credit card and auto debt.
The U.S. Department of Education’s data shows that the amount of students borrowing money has increased by $300,000 from 2003 to 2011.
According to the Department of Finance, the amount of student enrollment tuition and fees has increased by 97 percent in the Cal State University system from 2007 to 2014.
CSUSB tuition has almost doubled from the 2007-2008 school year to present day, reports the CCO.
“We are told nothing else can lead to prosperity besides economic status,” said student Moises Ramirez.
The same report by CCO claims that there are a few factors causing the increase in debt.
One reported cause is the rising number of students attending college who, after graduating, fall into debt.
Another may be that students are not taking full advantage of the grants they qualify for, and schools are not including the cost of room and board in their financial aid packages.
The report states that state budget cuts cause the increase in tuition, forcing students to borrow more money to make ends meet.
Richey suggests that students “should remain optimistic because of the positive externalities.”
The “externalities”, according to Richey, are that “the debt leads to a degree that will give the students much greater earning potential, and also the interest they pay on education debt is tax deductible.”
Richey advises students to consider making a budget, pay more than the monthly payment, and search for different loan forgiveness plans.
Only time will tell what direction the severity of student debts will go.
Originally published on coyotechronicle.net (April 13, 2014)