The outstanding debt held in student loans, estimated at over one trillion dollars, is now the second largest class of debt held by consumers — second only to home mortgages. The dangers posed by this debt may not be as great as the mortgage debt and its role in the ensuing financial system crash of 2008. But it is consequential for the economy, not to mention it’s devastating personal effects. You can read about the dimensions and find the relevant data here.
While this news isn’t “buried,” in the sense I’ve been using the term here in Page Seven, it does not receive the attention it deserves by economists or business writers as a major factor in the sluggish recovery, or in the prospects for long term growth. Nor is it prominent in the scripts and talking points of the two major ideological camps as they battle each day in the propagandist news.
In the case of the economists and business writers, student debt is an old story, part of the economy’s ether. Even for the professional analysts, a factor needs to be new or in flux or at a turning point, for it to count in discourse. Yes, student debt, as a partial explanation for the slow recovery and predicted future doldrums, has received recent attention in Forbes Magazine, NPR, and by the Federal Reserve. That’s pretty hefty. But check out the analysis of the monthly job and GDP numbers, even in these three venues, and there’s hardly a mention of it. Its just there, in the background.
As one major news agency said, reporting on the April 2014 Federal Reserve study of student debt, “policy makers on the Federal Reserve’s interest-rate setting panel have for the first time [emphasis added] identified high student debt burdens as a risk to economic growth.
For the two parties and the feuding ideological camps, the answer is different. Not necessarily in order of importance, here are some of the reasons student debt is not receiving much attention in the daily media wars:
-There is plenty of blame to go around for the student debt crisis; both parties, in their own ways, have stressed upward mobility for all through education and have made it easy to obtain loans.
-It’s not clear how youth electoral turnout and voting would be affected by more attention to the problem; or how to blame the other side in a way that doesn’t backfire at the polls.
-“Education and training” is central to the core ideologies and opportunity scripts of both parties.
-The old higher education/post secondary establishment depends heavily on revenue from government backed student loans; they have plenty of clout in the states and in local congressional districts.
-The newer, private, for profit education institutions (many are diploma mills), which are even more dependent on easy loans, and amongst the most irresponsible in promoting debt, are off limits to criticism……at least by conservatives. After all, these assembly line programs are privatizing education! Genuflection goes here. By the way, most of this is “faux privatization” (see my earlier post), since the solvency of these education vendors relies on government financial aid and guaranteed loans.
Liberals sometimes also tread lightly on the new diploma mills, which make it easier for low income people (with ample loans) to acquire a credential online, at home, in the evenings, while still working to support a family. Something to be said for that. But at what price?
So, why is student debt such a large drag on the economy? The answers are not mysterious. If you have large debts to pay, as far as the eye can see, you are going to postpone getting married, having a family, buying a home, furnishing it, and adding the deck and sun room. Indeed, when your student debt is high, you won’t qualify for a home loan in the first place, even if you have a good and serious plan to pay off both.
What is worse and more damaging to the general economy in the longer run, is that you won’t be saving much, even if the high income promise of your degree is fulfilled. When the national savings rate is impaired, it has large consequences for interest rates, investment and economic growth.
By the way, almost all of the data you see showing that education levels have significant effects on lifetime income, fail to discount the gains by the amount of the crushing debt.