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October 25, 2016

Students Debt: Why So Many and So Much?

Student debt is nothing new. In fact, it is pretty normal to be broke if you are a student and many students live on noodles and beer whilst at college. However, what’s changed in recent years is the level of debt students end up with when they graduate. So why are students taking on so much debt?

White House research shows that nearly 70% of degree students graduate with debt, which equates to around $1.2 trillion. This debt is severely restricting the recovery of the US economy. After all, people in debt are far less likely to make big purchases such as cars and homes, both of which are major drivers of economic growth.

Making a College Education More Affordable

The US government has been looking at ways to make college education more affordable, so if students want to study for a masters of public health at the University of Arizona, they can. The problem is that families are struggling to afford the cost of higher education for their children, yet having a degree is now considered to be even more important from a career perspective.

It’s a Catch-22 situation. Kids need a degree to get a well-paid job, yet fewer families than ever before can afford to send their kids to college. Middle class wages have not kept up with the rising costs of living and low-paid workers have seen the real value of their pay packet fall by 5%.

Students Defaulting on Debt

One quarter of all graduate students have either defaulted on their payments, or are not repaying their student loans at all. This is hardly surprising when you consider that government investment in higher education has fallen off, which has forced colleges to raise their tuition fees to compensate for a loss of income. At the same time, many for-profit educational institutions have adopted aggressive marketing strategies to attract more students. Critics argue that too many colleges inflate their job placement figures and lure students in with false promises.

A large part of the problem is that many students have no real understanding of how restrictive student debt is. When you owe more than $60k in student loans, the repayments are likely to take most of your disposable income and make it very difficult to save for the future, let alone make a down payment on a house or car. Students from poorer backgrounds tend to graduate with more debt because their families have fewer resources to help them through college.

Clinton Endorses Debt Management Proposal

The government is trying to address the student debt problem and Hillary Clinton has endorsed a proposal to make colleges pay some of the federal loan dollars graduates don’t repay. This should discourage colleges from making false claims about employment statistics and the benefits of a degree education. 

In the meantime, if you have kids and you want them to go to college to earn a masters in public health online, it is a good idea to start saving as early as possible.  

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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