The Economic Implication of Student Debt

A college education is a huge investment. Like all typical investments, college education creates costs presently but delivers benefits in the future (Dynarski 3). From an economic perspective, the income gap between college graduates and non-graduates is growing bigger every year. The value of educated workers is increasing by the year owing to the advent of technology. Technology has rendered most of the mundane tasks, typically reserved for lower-skilled staff, obsolete. Technology, however, creates more complex tasks requiring advanced skills and a higher level of teamwork - the hallmarks of a college education. The costs involved in acquiring a college education include direct expenses like tuition, books, and opportunity costs. The direct costs of college and the illegality of indentured servitude-complicating the involvement of third party lenders- necessitate that the government steps in the way of student loans (Dynarski 5). Student lending is based on the expected value of college in increasing socioeconomic mobility for the student after school. The payoff of a college education, however, is increasingly being overshadowed by concerns about the sustainability of student debt.

Outstanding student loan debt in the United States currently stands at a staggering $1.2 trillion with more than 40 million borrowers averaging about $29,000 (Holland). Annual loaning has increased two-fold between 2001 and 2010 from about $56 billion to more than $113 billion with college enrollment increasing by about 35% for the same period. The annual borrowing per student also showed considerable growth during the same period increasing by 54% from $3,500 to $5,400. The burgeoning debt levels have led to concerns about the economic concerns with worries that the spike constitutes a crisis. For current student loan levels to be correctly referred to as a crisis, the level of student debts should be proven to be greater than the estimated payoff of having received a college education in the United States. Currently, however, reports by the College Board indicate that the estimated benefits of a college education in the US are greater than the debt levels (Dynarski 3). There is a general consensus that the student debt levels have reached worrisome levels. There is a repayment crisis, however, with data showing that borrowers with the lowest income or whose income was variable were less likely to repay their student loans. The average default rate of about 13.7% averaging $14,000 per individual is likely to ripple on the economy as the federal government is unable to recoup the amount (Holland).

To understand the economic impact of student debt, it is important to focus on the opportunity costs that come with it. The mode of financing of college education is an important factor to consider because it is likely to cause either positive or negative externalities (Kraiem 703). The current framework where college students take on massive student loans has been found to have enormous consequences on their socioeconomic mobility. Students who end up defaulting on their students loans find themselves considerably worse off than if they had not attended college in the first place. Those who chose to repay their loans, on the other hand, find out over time that the debt burden considerably impairs their ability to invest in their futures like starting a family, investing in their enterprises or investing in a home (Kraiem 705). With the increasing income inequality, the student loan problem undermines the role of democratization of the education system in maintaining socioeconomic mobility in the country.

Works Cited

Dynarski, Susan M. "An economist's perspective on student loans in the United States." E S Working Paper Series. 2015.

Holland, Kelley. "The high economic and social costs of student loan debt." 15 June 2015. CNBC. http://www.cnbc.com/2015/06/15/the-high-economic-and-social-costs-of-student-loan-debt.html. 25 June 2017.

Kraiem, Daniella. Student Loans The Cost of Opportunity: Student Debt and Social Mobility. Suffolk University, 2005. Document.