Student loan debt has reached an astounding $1.53 trillion through the second quarter of 2018. That’s a massive amount of debt, second only to mortgage debt. This number has tripled since 2004 and doesn’t show any signs of slowing down. Throw in a variety of economic struggles and volatility, and you have a problem on your hands.
The reality is, many Americans struggle from time to time. Income volatility happens to us all, which can make it extremely difficult to fulfill our obligations. It’s difficult to afford rent, insurance, and our student loan debt.
It was estimated that as many as 8.2 million of us get behind, owing as much as $83 billion to the IRS just in taxes. Add that to the trillions of dollars owed in other debts, people are fighting to keep up during a time when the economy constantly bounces from one extreme to the other.
There are numerous reasons why this happens. It can be anything, such as their life is completely out of control, to simply not having enough money to pay their debts. Life disruptions, such as a death, sickness, and divorce, happen to most of us.
Income and economic volatility make it difficult as well. If you don’t know what your income will be any given year, it makes it downright impossible to guess if you’ll be able to pay off your student loan debt. The economy can fall through the floor tomorrow and leave thousands of people without work.
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Who Should Pay for Student Loan Debt?
“There has been a big shift in terms of who should bear the burden of the cost of education,” said Benjamin Keys, a Wharton real estate professor with a specialty in household finance and debt. “We know the stories of our parents, that they could earn enough working as a lifeguard in the summer to pay for a semester of college. The growth of tuition costs relative to teen wages — indeed, all wages — has veered sharply upwards.”
“We’ve come to a place where most students have to borrow in order to pay the cost of completing a bachelor’s degree,” said University of Pennsylvania professor Laura W. Perna, executive director of Penn’s Alliance for Higher Education and Democracy.
Right now in the U.S., there are 44 million people who have some type of student loan debt. The average amount of debt students hold is $37,000. That can take them up to a decade or more to pay off. Due to this, it is forcing young people to put off making major life decisions. There’s a lot of evidence that student loan debt is doing just that.
Because student loan debt disrupts so many lives, students all over the country are asking the government to step in and help. While the person did decide to take on debt to go to school, it’s not their fault that the economy was crashing. Many also fell victim to predatory advertisements from for-profit schools.
“They are certainly starting off at a disadvantage relative to previous generations, and a lot of the scrutiny of millennials is really misplaced given the disadvantages they’ve had in terms of their costs of education and poor labor market upon entry,” Keys continued. “It’s hard to say that they won’t eventually catch up. It depends on the health of the labor market, and how stable the economy is.”
This crisis owes its existence to both the Great Recession and the increasing cost of a college education. Just a decade ago, student loan debt was way below auto loans, credit card debt, and more. According to the Federal Reserve Bank, it now surpasses all these forms of debt. The correlation between higher debt and lower homeownership can’t be understated.
The Federal Reserve has released data proving that as student loan debt increased, the number of people buying homes has steadily decreased.
“A $1,000 increase in student loan debt lowers the homeownership rate by about 1.5 percentage points for public four-year college-goers during their mid-20s, equivalent to an average delay of 2.5 months in attaining homeownership,” write Alvaro A. Mezza, Daniel R. Ringo, Shane M. Sherlund and Kamila Sommer in “Student Loans and Homeownership.”
This further proves that student loan debt will only destroy the economy the worse the problem gets. The government needs to step in and help as soon as possible.