The student debt in the US has reached astronomical levels, with more students and parents taking loans to finance higher education. Over 45 million Americans have borrowed nearly $1.7 trillion in student loans.
A significant portion of this money is owed to the federal government, with other institutions supplementing the balance. Students now owe close to $30,000 by graduation, creating a strain on their incomes.
The crisis has significant social and economic implications that could haunt the US for generations.
How Student Debt Became A Crisis
With most successful Americans having a college degree, this route is becoming more and more lucrative, creating a price-inelastic demand. As a result, colleges and universities are in constant motion towards expansion, leading to rapid increases in tuition and other fees.
Besides, reduced government subsidies to public institutions create an attractive business environment for private ones. The underfunded public colleges and universities also have to increase their charges to improve their service and facilities to remain competitive.
Easy access to loans is also a contributing factor, as most students can borrow without considering their ability to pay.
Social And Economic Impacts Of The Ballooning Student Debt
The US student debt crisis has significant potential effects on society and the economy. Particularly, the debt creates an unnecessary strain on the federal budget. It also causes constant pressure on the debtors, especially those from low-income and marginalized communities. As a result, the ballooning student debt constantly threatens future generations.
Increased Mental Health Issues
Graduates are more likely to have psychological problems due to the constant pressure on their income. They may develop anxiety and sleep problems as they struggle to meet expectations.
Reduced Marriages And Childbearing
Graduates with substantial student debts are also less likely to marry. They also choose to have fewer children or none at all. This group is more concerned about income and debt repayment, leaving little room for family and friends.
With fewer marriages and children, the American population will grow slowly, causing an overreliance on foreign labor. The problem will extend to other spheres, including increased illegal immigration and an aging population.
Fewer Home Purchases And Mortgages
The need to buy a home becomes irrelevant with fewer people getting married and having fewer children. Graduates may also take longer to invest in properties due to the delayed achievements caused by the debt. This may result in unbearable economic consequences, including recessions and inflation.
Since the debt-paying graduates have fewer savings, they become risk-averse. They are less likely to invest or start businesses. With little to spare, they are more concerned about the next payment than starting new enterprises.
As a result, the US economy will shrink while having highly unutilized capital leading to higher inflation. The lack of new ventures may also cause a strain on the existing ones in job creation and goods production, causing an economic crisis.
Given These Consequences, Is Student Debt Worth It?
College is still the fastest route towards success and out of poverty. Millions of Americans rely on higher education to fast-track their ambitions and catapult them toward achieving the American dream.
A college degree is a proven approach as millions of former students who previously took these loans have successfully paid off their debts. Approximately 79 million Americans have had student loans, but only 45 million have not paid them in full.
Many debtors never completed their education, while a substantial portion earned middle-class salaries. Hence, taking a student loan is totally worth it. That college degree will change your life completely.
How A Student Can Take Control Of Their Student Loan
Students must learn to take control of their money during and after college by building wealth, controlling their expenditures, and expanding their earnings.
- Get a Job: Take that part-time job opportunity to reduce overreliance on student loans and scholarships to survive on campus
- Cutting Expenses: Avoid spending your money on unnecessary expenses
- Find ways to maximize your time
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Then Why Is Debt Cancellation Such A Bad Idea?
A majority of debtors have reliable sources of income. American graduates are distributed in reputable occupations, including elite attorneys, doctors, and business executives. Besides earnings, these individuals run the US economy. They pay taxes and create opportunities for others to earn income.
Keeping this group motivated to work is critical to economic progress.
Why Canceling Student Debt Is Bad
Debt Cancelation Will Create An Unwanted Precedence
Canceling student debt en masse will create unwanted precedence that could potentially cripple the US economy in the future. With 45 million debtors owing approximately $29,000 each, the cancellation would imply forgoing incomes close to $1.3 trillion.
The social and economic implications of this action would be felt for generations.
Student Cancellation Is Unjust
Student loans are voluntary strategies that create a moral obligation to repay. The incomes derived from the college degree only benefit the debtor, and their costs should not be transferred to the public. Additionally, most debt holders can repay if they curbed their spending but opt not to.
Bailing out such individuals would be an injustice to other Americans.
Cancellation Would Benefit The Rich
Student debt is a social problem that most borrowers are well off. A majority of the debt holders who earn middle-income salaries belong to higher wage brackets. Forgiving their loans would widen the income inequality gap between the low-income and high-income earners.
An Alternative Solution
Instead of canceling the debts, the government should consider increasing Pell Grants to marginalized communities. Graduates from minority communities struggle to pay their student loans due to their inability to climb the corporate ladder. They also have more expenses due to historical injustices and high dependency rates from family members.
Reducing the amounts these individuals are meant to pay after graduation will reduce the constant rise in student debt. Strategic cancellation of debts for struggling graduates can also curtail the crisis.
However, the most effective strategy is funding public institutions to improve their services and facilities without increasing tuition and fees, eliminating the need to borrow.
In addition, employing affirmative action by funding colleges and universities for marginalized groups can reduce the need to take loans.