By Daniel Indiviglio The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Student loans could be the next asset class to school the United States about poor debt management. Graduates are now forking over more of their disposable income in repayments than 10 years ago, defaults are rising and with Uncle Sam now directly holding $450 billion of student debt, taxpayers are on the hook again. That could put U.S. higher education in the embarrassing position of hindering, rather than helping to fuel, economic growth.
Here’s how: first, the size of the student loan market has mushroomed. Bachelor-degree debt at graduation has grown 250 percent over the past decade, according to finaid.org. At $867 billion, it exceeds both credit-card and auto debt in the United States, according to a study by the New York Federal Reserve. If this trend continues, by 2021 it’ll be equivalent to 1.3 percent of GDP, triple its current level, assuming GDP cleaves to its 4.5 percent 15-year average nominal growth.
Next, average payments have risen by 83 percent over the past decade while median income for those aged 25 to 34 has increased by just a fifth, according to the Bureau of Labor Statistics. That leaves less money for graduates to spend or save. Extrapolate ahead 10 years, and former students will be paying $125 billion extra a year. By then, that would equate to two-thirds of a percentage point of GDP.
MAR 22, 2012
5:50 PM UTC
You have to have a job to pay off debt!!!STOP supporting red china!!!Made in America is the only answer!!Be American and Buy American goods!!!Posted by kentonwoods | Report as abusive