Final_Draft

2016
In partial fulfillmentof
the requirementsforthe
degree of Bachelorof
Arts (Economics),
StocktonUniversity,
Pomona,NewJersey
BY ANDREW J. WILKIE
Student loan debt has exploded in the United States since the 1990’s, with the current national
balance in excess of $1.35 trillion This paper explores the history and reasons behind this
growth, and how ballooning student debt may affect the national economy in the future, if
current trends continue unabated. Using current trends, projections show that tuition rates and
student loan debt are beginning to surpass average annual wages for new college graduates.
For new graduates, this trend will result in decreased disposable income, decreased access to
credit, increased rates of delinquency and default, poorer credit scores, and increased exposure
to financial and existential risk. National Gross Domestic Product may also begin to suffer,
especially in the consumer spending and residential investment sectors.
STUDENT DEBT: AN EMPIRICAL AND
THEORETICAL PERSPECTIVE ON
AMERICA’S NEXT GREAT BUBBLE

Introduction
This paper seeks to examine some of the past, present, and future aspects and
implications of the growth of student loan debt in the United States. The costs of higher
education have ballooned in recent decades, and as a result, students have been turning to
loans more than ever before as their primary means of financing. This situation, when
combined with a relatively soft job market and historically stagnant wages, could have
serious implications for college graduates and our entire society in the future.
First, I will provide a brief overview of the history and mechanisms of higher
education in the U.S., with an emphasis on enrollment rates, tuition and fees, and lending
practices, to illustrate how and why student debt has grown so much over time. Next, I will
provide a review of some of the existing scholarly literature on the subject of student loan
debt in the U.S., to provide some outside perspective on the rising costs of higher education,
its implications, and various mitigation strategies. Then, I will discuss my own empirical
findings on the issue of student loan debt, with attention paid to tuition costs, university
revenues and expenditures, and debt carried per student. I will also compare those
findings to aspects of the current labor market for college graduates, such as
unemployment and underemployment, and wages. Next, I will discuss the possible
implications of these findings, and how rising student loan debt may affect college
graduates and our economy in the future. Lastly, I will provide my conclusions on this
issue, with attention paid to possible mitigation strategies in the form of U.S. government
policies and intervention, and/or the activism and efforts of the American people
themselves.

Literature Review
Student loan debt is a relatively new phenomenon in our society. It wasn’t until the
1990’s and 2000’s that outstanding student loan debt began to balloon on a large scale.
However, despite this relatively new socioeconomic phenomenon that has only recently
entered our collective consciousness, some excellent empirical work has been done in
recent years in attempt to understand and explain how and why student loan debt has
become such a massive “force of nature”, and how it is affecting students, borrowers,
families, and the economy itself. Several scholarly works on this topic are described below.
Daniel A. Austin, an Associate Professor at the Northwestern University School of
Law, wrote a law review article on the history and implications of student loan debt
entitled “The Indentured Generation: Bankruptcy and Student Loan Debt” (2013). Of
particular interest in this paper are Austin’s findings on the financialization and
profitability of student loans.
Austin notes that direct-lending annually generates approximately $40 billion in
revenue for the federal government, which is roughly 20% of each dollar loaned. This
raises the question not only of whether or not the public sector should be charging interest
on student loans, but how much it should be charging, and where that revenue should be
directed. Austin also discusses student loans generated by private lenders, which currently
comprise 7% of new borrowing, but constitute 15% of total student loan debt ($150
billion). He describes how private lenders, such as Sallie Mae, borrow money and then
relend it to students at higher rates. Those loans have since become the assets behind
securities which, in 2010, were traded for $250 billion. This practice is eerily similar to the

bundling and selling of the mortgage-backed securities which eventually led to the Great
Recession after the housing market began to decline in 2006.
Tuition rates and fees have skyrocketed in recent decades relative to the CPI, the
reasons for which have begun to be examined. One potential explanation for the increase,
as noted by Austin (2013), is the Bennett Hypothesis, (named for William Bennett,
Education Secretary under Reagan) as explained in a Boston Globe article written by Paul
Kix entitled “Does Financial Aid Make College More Expensive?”. It argues that the
increased supply of loanable funds for education has created a surge of demand for higher
education, and therefore, a surge in college enrollment. This increase in the supply of
students with the funds needed to enroll has resulted in universities raising tuition rates in
order to capture those funds. Supporters of the Bennett Hypothesis assert that low-cost
loans will continue to drive up the cost of higher education, and ironically, negate their
intended purpose: to make higher education available to students at all economic strata.
On the issue of delinquency and default, Austin (2013) describes the difficulties in
discharging student loan debt via bankruptcy proceedings, as student loan debt is often
excluded from discharge in bankruptcy. He notes that student loan debt cannot be
discharged without a showing of undue hardship, the caveat being that the inability to
service the debt does not constitute undue hardship. Undue hardship is instead
determined by the court via a test such as the Brunner Three-Part Test (the debtor cannot
maintain a minimal standard of living, additional circumstances will exist during the
repayment period, and the debtor has made a good faith effort to service the debt).
Dynarski (2014) notes that while most of the attention is focused on students with
high loan balances, most defaults actually occur on loans which are much smaller. The

average loan in default is roughly $14,000, whereas the average loan not in default is
$22,000. This could be due to the fact that students who borrow more are attending more
elite institutions, attending graduate school, or obtaining professional degrees, all of which
would improve a student’s employment prospects and ability to repay their loans.
On the other hand, Dynarski (2014) adds that in 2009, 44% of college students who
had enrolled in 2003-04 had not borrowed any money for college, and that 25% had
borrowed $10,000 or less. Thus, 69% of college graduates had borrowed $10,000 or less.
The remaining students had borrowed more than that, with only 2% borrowing more than
$50,000. These figures seem to indicate that student loan debt may not be the crisis many
believe it to be.
Researchers have also begun to look at student loan debt as compared to other
forms of household debt. Donghoon Lee of the Federal ReserveBank of New York released
a report entitled “Household Debt and Credit: Student Debt”. In his report, Lee (2013)
shows that while other forms of household debt have declined or remained relatively flat
since the Great Recession (home equity loans, auto loans, and credit card debt), student
loan debt is the only form of debt which has steadily risen. He attributes this growth to
higher enrollment rates, parents borrowing for their children, and the availability of
deferments and forbearances. He notes that by the end of 2012, 44% of borrowers were
not repaying their loans, due to deferments and forbearances. Deferment and forbearance
contribute directly to student loan debt because interest continues to accrue despite no
payments being made toward the balance.
Lee (2013) also points out that delinquency rates for student loan borrowers have
been on the rise (nearly 20% in 2012), and that new mortgage originations have been on

the decline. He also notes that delinquent student loan borrowers are extremely likely to
be delinquent on other forms of debt as well. These figures suggest that student loan debt
is having a negative impact on borrowers’ access to credit. Poor credit, in turn, will make it
much more difficult for these people to own a home, buy a car, or qualify for a credit card.
Other researchers have examined the current labor market for new graduates. This
research is relevant to the problem of student loan debt simply because a student’s ability
to service their debt is largely dependent upon their ability to find and procure
employment that pays a high enough salary. Davis et al. (2013) highlight the fact that
unemployment and underemployment (graduates working in positions that do not require
a degree) rates for young college graduates remain relatively high, that inflation-adjusted
wages for young college graduates are 2.5% lower today than they were 15 years ago, and
that there are major racial and ethnic disparities in those figures. They point out that these
problems, coupled with the fact that tuition rates have skyrocketed despite only minor
increases in median household income, have led to more and more students financing their
higher education with loans.
Because of this, higher education has become an increasingly difficult investment to
make, and one with much less of a return than in the past. Davis et al. (2015) point out that
because the class of 2015 has graduated in a weak economy, they will ultimately earn less
over the next 10 to 15 years than if they had graduated in a better labor market. Dynarsky
(2014) argues that earning a degree is still a worthy investment, but that the primary
problem here is a growing mismatch between the timing of the costs and benefits
associated with obtaining a college degree.

While there is a growing body of research on the issue of student loan debt in the
United States, there seems to be a general consensus that more information and data are
needed before we can fully grasp the socioeconomic gravity of the situation. There is still
plenty of debate on whether student loan debt is indeed a national problem, and if so, what
the consequences of such a problem may ultimately be.
Some economists, such as Wenli Li (2013) have argued that ballooning student loan
debt could actually hurt consumer spending at the macroeconomic scale, due to monthly
income being needed to service student loan debt. Rothstein and Rouse (2011) have
argued that student loan debt may dissuade graduates from pursuing careers that are not
particularly high-paying, but necessary for the well-being of society, such as teaching. Dora
Gicheva (2013) has even suggested that higher amounts of student loan debt decrease a
graduate’s long-term chances of getting married.
Ultimately, because the issue of student loan debt is a relatively new one, its
implications are largely theoretical. However, the body of literature on this subject is
continuing to grow, as student loan debt in the United States is only expected to grow as
well. In this paper, I hope to address questions about the implications of student loan debt,
within the context of the scholarly work which has already been completed on this subject.
Where are we headed, if the pace of debt growth continues unchecked? And, what will that
mean for future generations of college graduates, and the economy itself?

Methodology
To fully investigate and understand the issue of student loan debt in the United
States, it is crucial that we take a longitudinal approach. While the problem has only
recently become a topic of national conversation, it has actually been developing for
decades.
A primary concern is the increase in the direct cost of higher education (tuition and
fees) over time. In this paper, I utilized data that comprises inflation-adjusted average
tuition rates at four-year public and private degree granting institutions in the United
States, dating back to 1963, obtained from the National Center for Education Statistics (US
Department of Education). There are other costs associated with earning a degree (such as
commuting, books, supplies, food, and entertainment); in this paper, I chose to examine
only tuition and fees. This is because the ancillary costs of higher education are highly
individualized, and largely unable to be tracked. Tuition and fees are the primary issue
here, in the sense that students would not be incurring massive amounts debt if tuition
rates had not grown at such a monumental pace over the years. The formal cost of higher
education is the only expense variable in this issue which is seriously affecting the lives of
students and borrowers, and the only variable which could actually be affected by changes
in public policy.
Equally as important here are the means by which students and their parents have
been financing their higher education expenses. In the past, when tuition rates were much
lower relative to the Consumer Price Index (CPI), college students were largely able to pay
for college with cash earned by working part-time. But as tuition rates have soared,
borrowing has become the primary means of payment. In my paper, this debt is expressed

as the inflation-adjusted average student loan debt per borrower upon graduation. My
data begins in 2004 and is obtained from the Federal Reserve Board of the United States,
and The College Board. The College Board, formed in 1899, is a private, non-profit
organization which focuses on all levels of education. It is important to note here that debt
per borrower does not necessarily mean debt per graduate, because many students have
parents who took out loans on behalf of their children. Student loan debt is a burden upon
not only graduates, but their families as well.
Student loan debt, fueled by rising costs, does not exist in a vacuum. In other words,
this topic would not be worthy of discussion if salaries and wages were keeping pace with
the debt load. Therefore, it is important to investigate this phenomenon as it exists
alongside the job market, and within the aggregate economy itself. Wage data are inflation-
adjusted, dating back to 1989, and were obtained from the National Association of Colleges
and Employers, and the Federal Reserve.
This paper uses data that compares average debt loads and average tuition rates to
average starting salaries for new college graduates, in order to provide some perspective
on the collective debt-to-earnings ratio for new graduates, which is rapidly approaching
100%. Rates of change for all data were projected 15 years into the future, to examine
what may occur if current trends continue unabated.
All data have been adjusted for inflation, utilizing 2015 dollars. Conversion factors
for inflation adjustments were provided by Robert Sahr, Professor of Political Science at
Oregon State University (http://liberalarts.oregonstate.edu/spp/polisci/robert-sahr).

Empirical Findings
The Rising Costs of Higher Education
The primary force behind the expansion of student loan debt in the United States is
the rapid rise in the costs associated with higher education, specifically the tuition and fees
rates charged by degree-granting institutions. The data in Figure 1 (NACE, 2015) indicate
that in constant 2015 dollars, the average annual in-state cost of attending a public
university has risen by roughly 400% since 1963. For private institutions, the average cost
has increased by almost 250%.
For perspective, the Consumer Price Index (CPI-U), utilizing 1982-84 dollars as the
base years, has risen 206.4% since 1963 (BLS, 2016), far less than the cost of college.
0
5000
10000
15000
20000
25000
30000
1960 1970 1980 1990 2000 2010 2020
TuitionandFees,2015Dollars
YEAR
Figure 1: Average Annual In-State Tuition and Fees, 4-Year Public and Private Colleges
Source: National Center for Education Statistics (https://nces.ed.gov)
4-Year Public
4-Year Private

Degree-granting institutions are complex financial entities, and, therefore, given that
we are investigating the rising costs of obtaining a degree, it is interesting to examine
various average cash inflows and outflows at these institutions. Understanding where
money is coming from, and where it is going, is vital to understanding this problem.
Figure 2 below details average revenues and expenditures per student over time,
organized by type of inflow and outflow, with data from the U.S. Department of Education
National Center for Education Statistics (NCES, 2015). From 2008 to 2014, average cash
inflows from local and private sources have remained flat. However, federal and state
funding for higher education have decreased during the same time period. The only type of
cash inflow that has increased since 2008 has been tuition and fees.
On the outflow side, expenses per student on total instruction, and on the salaries
and wages of instructional staff, have risen slightly since 2012. However, this increase
occurred after a steep drop off which last from 2009 to 2012. Presently, average expenses
per student on instruction and instructional staff salaries are functionally flat since 2008.
0
2,000
4,000
6,000
8,000
10,000
12,000
2006 2008 2010 2012 2014 2016
2014-2015DOLLARS
YEAR
Figure 2: Average Revenues and Expenses Per Student
Source: National Center for Education Statistics, US Dept. of Education
Rev Per Student (Tuition +
Fees)
Rev Per Student (Federal)
Rev Per Student (State)
Rev Per Student (Local,
Private)
Exp Per Student (Instruction
Total)
Exp Per Student (Instructor
Salaries)

According to the data provided by the U.S. Department of Education, colleges have
also increased spending on campus medical facilities. Additionally, spending has increased
on student accommodations and the overall presentation of campuses. It is now not
uncommon to see big screen televisions, provided by the university, in the common areas
of dormitories. Universities have also expanded their dining facilities to include well
known national brands. These types of expenditures have gone up in an attempt to attract
more students, and by extension, more tuition revenue.
The Rise of Student Loan Debt
As the costs of higher education have increased over time at a pace that has far
exceeded the rate of wage growth in the United States, now more than ever, students are
forced to finance these costs with loans. From 2004 to 2014, the number of student loan
borrowers increased by 92%. Furthermore, the average balance per borrower increased
by 74% (Davis et al., 2015).
The cumulative student loan debt balance is now over $1.3 trillion. By utilizing data
from the Federal Reserve, MarketWatch has calculated that the national balance increases
by $2,726 every second. Student loan debt is now 7% of the national debt, 7% of gross
domestic product, and 8% of total personal debt. If broken down into $100 bills, the
balance would circle the equator more than 47 times.
Figure 3 below was released by the Federal Reserve Bank of New York in August
2015, and plots the national student loan debt balance over time (Bricker et al., 2015).
“G.19” (red line) utilizes data from the Federal Reserve Board’s Consumer Credit Release,
which varies slightly from the data utilized (blue line) in the Federal Reserve Bank of New

York’s Quarterly Report on Household Debt and Credit (based upon the Consumer Credit
Panel, or CCP).
Figure 3
Furthermore, debt per borrower has also been on the rise. Currently, the average
balance upon graduation is about $30,000 per borrower. When adjusted for inflation to
2015 dollars, this is an increase of roughly 63% over the average balance of just under
$19,000 in 2004 (TICAS, 2014, pg. 2). Figure 4 below plots this increase, using data
provided by the Federal Reserve Bank of New York, and the College Board. We use the
term “borrower” here to include parents, relatives, and others who borrow on behalf of
students, in addition to students who are borrowing for themselves.

Rising Student Loan Debt and the Macroeconomic Context
Rising student loan debt would not be a topic of discussion if aspects of the
economy, such as the job market and wage growth, had been keeping pace. Unfortunately,
this is simply not the case. Relative to the CPI, salaries and wages in the United States have
been relatively flat, increasing by roughly 8% since the early 1970’s after robust wage
growth following World War II. Figure 5 below plots the average starting salaries for
young college graduates fresh out of school, by gender, compared to the Consumer Price
Index (base years 1982-1984).
17000
19000
21000
23000
25000
27000
29000
31000
2002 2004 2006 2008 2010 2012 2014 2016
2015DOLLARS
YEAR
Figure 4: Average Student Loan Debt Per Borrower
Sources: The College Board, Federal Reserve Bank of NY
Average Debt Per Borrower

In addition to flat wages, recent graduates are also facing relatively high rates of
unemployment and underemployment. In May 2015, young college graduates had an
unemployment rate of 7.2%, and an underemployment rate of 14.9% (Davis et al, 2015).
To be underemployed as a college graduate means that the graduate’s current position of
employment does not require a bachelor’s degree. Furthermore, data from the Federal
Reserve Bank of New York indicate that the percentage of college graduates in high-paying
jobs that do not require a degree has fallen consistently since at least 1990, and that the
percentage of graduates in low-paying jobs without a degree requirement has consistently
risen in the same period of time (FRBNY, 2015).
Furthermore, the numbers of young graduates who are neither employed nor
enrolled in a graduate program is also high, despite the ongoing macroeconomic recovery.
0
50
100
150
200
250
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1985 1990 1995 2000 2005 2010 2015 2020
CPI
2015DOLLARS
YEAR
Figure 5: Average Starting Annual Salaries for RecentCollege Graduatesvs.CPI
Sources:NationalCenterforEducation Statistics(USDept of Education),BLS
Average Male Wage
Average Female Wage
CPI

10.5% of graduates are “idled” in this way, which is up from 8.4% roughly a decade ago
(Davis et al., 2015).
Graduates heading out into a weak labor market tend to experience sticky wages
which reflect the conditions of the market when they initially entered after graduation.
Research suggests that recent graduates will earn less over the next 10-15 years than if
they had graduated into a better job market (Davis et al, 2015).
The increase in the average debt balance per borrower, coupled with a weak labor
market, has also led to a rise in delinquencies and defaults. Figures 5 and 6, which plot this
increase, were released by researchers at the Federal Reserve Bank of New York (Brown et
al., 2015).
Figure 5

Figure 6
Rising debt, coupled with increases in delinquencies (late payments) and defaults
(extended delinquencies, typically over 270 days without a payment), may be contributing
to the sharp decline in home and automobile ownership for recent college graduates. Since
2008, the percent of student borrowers who own a home has plummeted at a much faster
rate than those homeowners without student debt. A similar trend has also occurred in the
automobile market. Figures 7 and 8 plot this trend, and were also released by researchers
at the Federal Reserve Bank of New York (Brown et al., 2015).

Figure 8
There is also evidence to suggest that student loan debt is affecting borrowers’
credit scores. Figure 9 below was released by researchers at the Federal Reserve Bank of
New York, and plots the average credit scores of people with and without student loan debt
(Brown et al., 2015).

Figure 9
Credit scores are affected by events such as missed debt payments and defaults.
Furthermore, a high debt-to-income ratio can prevent a potential borrower from qualifying
for a mortgage or car loan. Poor credit, high debt, and low wages may all be the primary
reasons why student debtors have not been purchasing homes or automobiles. It is easy to
see how lack of creditworthiness for a large and growing percentage of the population
could become a significant drag on the aggregate economy in the future.

My Projections and Conclusions
Rising costs, skyrocketing debt, stagnant wages, and a weak job market combine to
form reality for recent college graduates, as well as current and future students.
Figure 10 below is a combination of several charts already discussed in this paper
thus far. It shows a history and 15-year projection for the average starting wages for
recent college graduates, average annual in-state tuition and fees at public and private
four-year non-profit universities, and average debt per borrower. All figures are adjusted
for inflation to 2015 dollars. Projections are based on the historical average rate of change
for each variable, and assume that these rates continue unabated into the future.
I have constructed these projections using historical rates of change because of the
lack of concrete policy measures being employed to address the problem of student loan
debt and the rising cost of higher education. Given this lack of progress, I have assumed
that current trends will continue in the short-run unless there is substantial government
intervention prior to the 15-year projection.

y = 3.98x2 - 15694x + 2E+07
R² = 0.9869
y = 3.4805x2
- 13451x + 1E+07
R² = 0.9752
y = 23.57x2
- 93668x + 9E+07
R² = 1
y = 219.06x - 399095
R² = 0.3719
y = 65.163x - 95444
R² = 0.0663
0
10000
20000
30000
40000
50000
60000
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
2015DOLLARS
YEAR
Figure 10:Tuitionand Fees, Wages, andAverage Debt UponGraduation
(All figuresin 2015 dollars)
4-Year Public
4-Year Private
Average Debt Per Borrower
Average Male Wage
Average Female Wage
Poly. (4-Year Public)
Poly. (4-Year Private)
Poly. (Average Debt Per
Borrower)
Linear (Average Male Wage)
Linear (Average Female
Wage)
Sources: Economic Policy Institute (http://www.epi.org/publication/charting-wage-stagnation), National Center for Education Statistics (https://nces.ed.gov), The
College Board (http://trends.collegeboard.org/student-aid/figures-tables /cumulative-debt-bachelor%E2 %80%99s-degree-recipients-four-year-institutions-over-time)
Notes: Figures are in constant 2015 dollars, utilizing the appropriate CPI conversion factors as provided by Robert Sahr of Oregon State University
(http://liberalarts.oregonstate.edu/spp/polisci/research/inflation-conversion-factors). Average wage data are for college graduates, aged 21-24. Average annual
tuition and fees rates are for non-profit, four-year public and private universities. Average debt upon graduation represents debt per borrower. Projections extend
out to 2030.

Assuming the prevailing trends continue for the next 15 years, my projections
indicate that the average student loan debt balance per borrower will soon equal the
average starting annual salary for new college graduates, between the years 2020 and
2030. This scenario will occur for women before it will occur for men, because these data
suggest that wages for female graduates are growing at slower rate than for male
graduates. This will be the first time in history that college graduates, on average, will
graduate with as much or more debt as their first job will pay them in their first year out of
school.
Additionally, the average annual in-state cost of attending a four-year, non-profit
private university will meet and then begin to exceed the average starting annual salary for
young female graduates shortly after 2030 (about $37,700), and for males shortly after
2040 (about $44,860).
The average debt balance per borrower is growing at a much faster rate than the
growth rate of tuition due to interest, as well as the financial penalties associated with
delinquency and default. In less than a decade, the average balance per borrower will be
nearly $38,000; by 2030, the average balance has risen to over $55,000. If the current
trend continues, by 2050, the average student loan balance per borrower will be in excess
of $105,000.
Figure 11: Approximate Projected Figures
AVG ANNUAL COST AVG STARTING WAGE
YEAR PUBLIC PRIVATE MALE FEMALE AVG DEBT
2020 $11,500 $31,260 $49,100 $37,900 $37,440
2030 $15,760 $37,700 $51,300 $38,500 $55,360
2040 $20,800 $44,860 $53,500 $39,200 $78,000

Utilizing a 10-year installment plan (the standard repayment plan for Stafford loan
borrowers), with the standard 2016 interest rate of 4.29%, a borrower with $30,000 in
student loan debt will have a monthly payment of $307 for 120 months, and will pay nearly
$7,000 in total interest. To put this figure into context, assume a female graduate will have
a gross income of $35,000 in her first year at her first job after graduating. Assuming a
20% tax rate, she will take home $28,000. During that year, she will pay $3,684 to service
her student loan debt, bringing her annual income down to $24,316. Her student loan
payments function in the same manner as would an additional 10.5% tax on her income.
Translated to an hourly wage, this female graduate, after taxes and student loan debt
payments, is earning about $11.70/hour, assuming she is working 40 hours per week. She
will be keeping about $1,870 each month, which must somehow cover other expenses such
as rent, electricity, water, cable/internet, food, insurance, commuting costs, etc. After all of
her basic necessities are covered (assuming she can afford her basic necessities), there is
little, if any, income left over for savings, investments, and other important discretionary
expenses. Her only hope is that nothing disrupts the delicate equilibrium she enjoys
between her income and her financial obligations, such as a job loss, an increase in rent or
other services, a car repair, an illness, or any other unforeseen yet all too common life
event.
The scenario described above is becoming more common every year as tuition rises
and borrowing grows. Given the increasing rates of delinquency and default among
student borrowers, it is likely that more and more college graduates are living on the
financial edge as wages remain stagnant but education costs continue to soar. It is difficult
to determine exactly how this growing trend may affect the aggregate economy, but as

described earlier in this paper, data are already pointing to the fact that the number of
student borrowers who are buying homes and vehicles has plummeted relative to people
without student debt (shown in Figures 7 and 8). As the problem grows in the coming
years and decades, it is reasonable to assume that the negative effects of student debt on
various types of consumer spending will grow as well, potentially affecting Gross Domestic
Product.
Since the issue of student loan debt has entered the national spotlight, there has
been a growing movement to reform higher education in the U.S. Various organizations,
such as StudentLoanJustice.org, StudentDebtCrisis.org, and the Student Labor Action
Project (www. StudentLabor.org) have formed in recent years to lobby against what they
consider to be a corrupt and unsustainable system of higher education.
Furthermore, the Institute for College Access and Success (www.TICAS.org) has
created the Student Debt Project, which serves as an ongoing analysis of student loan debt
in the U.S., and provides policy recommendations on the issue. TICAS has advocated for the
expansion of grants and the improvement of income-based repayment options, as well as
for the providing of more tools and data for borrowers and families of borrowers, so that
they are able to make more informed decisions about student loans (TICAS, 2015).
Presidential hopeful Bernie Sanders (www.BernieSanders.com) has strongly
advocated for a total overhaul of higher education in the U.S., including free tuition at
public degree-granting institutions, and the reduction or elimination of interest on federal
student loans. According to his website, Sanders plans on “imposing a tax of a fraction of a
percent on Wall Street speculators” to provide the $75 billion needed each year for free
tuition at public institutions. Former Secretary of State and Presidential candidate Hillary

Clinton (www.HillaryClinton.com) has advocated for cutting interest rates, holding
universities accountable for controlling their costs, and free tuition at community colleges.
Clinton plans on using a combination of state and federal funding, along with mandated
student work study and family contributions in order to reduce the costs associated with
higher education. According to Clinton’s website, “Students should never have to borrow
to pay for tuition, books, and fees to attend a four-year public college”.
As imposing as it may seem, the push to repair and control the costs of higher
education in the U.S. is gaining momentum, and not a moment too soon. In my opinion, the
current trend is not sustainable in the long run, if it were to continue unabated. Young
people will find themselves in a truly precarious position as the economy continues to offer
less and less to workers without a college degree. Therefore, entire cohorts of the
American population will have no choice but to take on enormous amounts of debt that will
take years or decades to repay, just to have any hope of finding and building a career in this
“brave new world”. If this current trend continues, student borrowers will have decreasing
rates of disposable income, higher debt-to-income ratios, decreasing access to credit, and
decreasing purchasing power.
Furthermore, the increased buying and selling of student loans as marketable, asset-
backed securities is truly disturbing, considering that the assets behind the securities are
the student loans themselves (Austin, 2013). Similar to the subprime mortgage crisis
which began in 2008, if large percentages of student borrowers began defaulting on their
student loans, there could be serious ramifications for the institutional lenders and
investors involved, and by extension, the aggregate economy. The scale of such a crisis
could be minor or enormous; it is impossible to speculate at this juncture.

Ultimately, it is clear that this complex issue must be addressed, and in the near-
term. This proverbial “can” has been “kicked down the road” since the 1990’s, and the time
has come for the federal government, and the American public, to work together in order to
solve this problem, before it becomes our next great economic crisis.

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