Education is free in at least 44 countries around the world .1 USA isn’t one of those countries. As a matter of fact it might well be the most expensive country to study in. Recent statistics show that the total outstanding debt of education is around $1.2 trillion.2 That is more than either car loans or credit card loans. And it isn’t just the combined total that’s risen past these years, it’s also the debt per borrower level which is at a new high, a little shy of $30 000.2 You may wonder why such a high amount? Well there are multiple reasons for that. First there’s the number of enrolled students. “Nearly two-thirds of high-school graduates enrolled in college in 2013, a six percent increase from 1995.”2 A major spike in the enrollment took place during the Great Recession because of poor labor market conditions. If you divide the applicants to three different categories based on income the number of students from lowest income families rose the most, by 21 percent points between 1984 and 2008.2 According to Goldman Sachs more than 50 percent of the increase in total amount of student debt since 1995 is due to increased enrollment and therefore increased lending.2 The second reason for the problem and also the other side of the function is that college tuitions and fees are rising fast. The White House estimates a growth of 87 percent between the years of 2000 and 2013 in public four-year college tuition and fees.2 They also state that there have been grants and tax benefits that have offset the costs for students. But nonetheless it’s hard to come up with any reasonable argument for those tuition raises. Presumably the level of education isn’t 87 percent higher than in 2000. It seems like colleges ramp up their tuition and fees higher because the government grant students higher average loans as was before mentioned.
So why do almost 21 million students enroll each year to postsecondary institutions?3 Usually it’s either to increase their economic mobility or to stay in the highest income class, depending on where you start. Recent surveys indicate that the median annual earnings of a Bachelor’s degree recipients are $28 000 more than their counterparts with only a high school diploma.2 Bachelors also face lower unemployment rates. Furthermore “a college education increases the chances that an adult will move up the socioeconomic ladder.”2 ´So to reach these aspiring goals students have to go to a college and usually apply for a loan. Doing so they might unwittingly hinder their financial activity post-graduation. According to Liberty Street Economics U.S. auto and housing markets recovered significantly between 2012 and 2013, by 11 percent.4 Was it due to young borrowers with student loan? No. If you were to examine the housing markets you would see that the rate of homeownership has gone down for thirty-year-olds with and without student debt, it dropped two percent points during last year.4 For the first time in decades homeownership of people with a student loan history was lower than that of non-borrowers. In the auto market on the other hand participation of people at age 25 had increased slightly, by two percent points.4 Car debt growth seemed to be rising for both demographics, with and without student loan history. Yet still there were more nonstudent borrowers than student borrowers. Before the year 2010 there was a clear difference between these two demographics. At least for now it seems like students that are aspiring to reach their goal of higher economic mobility have yet to reach it.
There is one more nuance affiliated with recent year’s student loan industry. Compared to say Finland where there is one government backed student loan program which includes every third degree student and is the same for all, in USA there are multiple programs. The complexity of these multiple loan programs, tuitions, fees, grants and tax reliefs have lead students into situations they don’t truly understand.5 Because of some clever students during the 1970’s, anti-default actions were imposed to prevent defaulting even after personal bankruptcy. Today banks have the right to take 10-15 percent of your salary if you have outstanding student loans. All-in-all this makes the path of a future college student in USA seem quite grim.