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Student Loans Are A Drag On The Economy And Society

12 FEB 2014

The shift from greater public funding of higher education to individuals financing their own education through debt has put more risk on individual students. But it also has potentially negative social and economic effects that spread beyond the college campus.

While loans are intended to expand college access to a broader population, the nature of risk that they entail also produces the opposite result. Low- and middle-income students worried about the consequences of taking out a loan will be more likely to decide that college attendance is not worth the risk. What we intended as a mechanism of educational expansion, then, is working at cross-purposes with itself. Sociologists Rachel Dwyer, Laura McLoud, and Randy Hodson put it best: “There is a certain irony that those who were expected to benefit most from expanded college access are also most vulnerable to the risks of carrying too much debt.”

While there is not enough data to make a conclusive statement based on this single study alone, this conclusion fits with broader evidence that high private debt levels are a drag on economic growth. In the wake of the financial crash, households have been trying to deleverage, or pay down their debt so they can have a healthier financial outlook, reduce the amount of their income that they use to service their debt, and begin investing and consuming again. During the deleveraging process, household spending is constrained, serving as an impediment to a healthy economy. Numerous studies have shown that the debt overhang of households from the mortgage crash in 2007-08 has been an enormous drag on the economic recovery. Additionally, high levels of household debt leave the economy more vulnerable to overall shocks like a financial crisis. This can make downturns more severe and difficult to climb out of

Read full article: Forbes