How Much Impact Does Student Debt Really Have on the Economy?

Student loan debt is rapidly approaching $1.2 trillion. What’s worse is that, with little reliable data available about the impact of student loan debt, we can't assess the real effect it's having on the economy. Regardless, we do know that student debt isn't good for sustaining a growing nation.

Freshly-minted, young graduates should be leaving college ready for the workforce and to help feed our thriving economy. Instead, burdened with high amounts of student debt, they usually don't have the extra cash to thrust back into the economy.

According to a Huffington Post article:

"Financial regulators, federal policymakers at the Treasury Department and Federal Reserve, and select bank chief executives who advise the Fed have been warning for several months that large unpaid student loan balances may jeopardize the economy in the coming years as bigger chunks of household paychecks go towards repaying college debt instead of buying new goods and services, investing in small businesses or saving for retirement.”

Rohit Chopra, assistant director of the Consumer Financial Protection Bureau and student loan ombudsman, said that he is “concerned that financial regulators and the public lack basic, fundamental data on student loan origination and performance.” Chopra went on to say that the lack of good data is “adding further uncertainty about the potential spillovers into the rest of the economy.”

It is clear that we need more apparent data on student loan debt levels so we can better understand its effects. But as we’re providing more information to the public and helping borrowers manage their student loan debt, The Education Trust has come out with a proposal that will actually do away with student debt for some students.

By using existing federal resources, the plan proposes to offer no-loan guarantees to low-income families - a family of four making $50,000 or less - and no-interest loan guarantees to middle- and upper-income families. This revolutionary idea offers a comprehensive solution to the student debt crisis by targeting financial aid to better help students pay for college without having to take on crushing debt.

Right now federal education officials are unable to determine even basic information on student debt, such as the number of borrowers delinquent on their loan payments or the amount of distressed borrowers in income-based repayment plans. We should be focusing on remedies to fix the problems at present, but a long-term solution, such as the one offered in the Doing Away With Debt proposal, is the best measure to mitigate future debt burdens on students.

To learn more about the Doing Away With Debt Proposal, click here.