The economy may be booming but it doesn’t look that way to those who have student debts. Wages are stagnating and tuition as well as interest rates are also rising. For students still in school or contemplating higher education it adds up to daunting prospects. Jerome Powell the head of the Federal Reserve is beginning to acknowledge student debt as an economic concern. For one thing the total amount of student debt is $1.5 trillion. Indeed when those young people cannot afford homes, and all that goes with it, such as buying new furniture, it ends up slowing the economy. Another aspect of the problem is the default rate which is higher than that of cars or home ownership. Not surprisingly the default rate is higher for people of color, for those attending for-profit colleges and strangely enough for those with smaller amounts to repay. There is also the group who were not able or did not graduate with a degree, for them the debt still exists but is even harder to repay. Many of those are predictably from for profit colleges. The one group which fared well in terms of loan repayment are those who received professional degrees, medicine for example, where the post-graduation salary enables them to meet their obligation. But for most there is a long term effect. For people who can’t pay off student loans, the debt affects at least half their lives, hurts their credit rating and certainly impacts a lot of the economic decisions they will have to make.
It is a function of government to enable the society and the marketplace to provide the education current and future citizens will need to sustain the economic life of all. That is a function that is not being currently addressed and while there is hope in that the Fed Chairman is aware, it will take a lot more for this problem not to have dire consequences.