College Debt Levels Threat to USA Economy

College Debt Rising

College Debt Rising

A democratic senator has suggested that the level of college debt held by young Americans is a serious threat the American economy. Democract Senator Kirsten Gillibrand is pushing a bill that would help people refinance federal student loans with high interest rates. The senator wants all student loans with a rate higher than 4% scaled back to 4% with refinancing, a move that would affect 90% of federal student loans.

The level of student debt is now staggering in the United States, tripling to $1.1 trillion dollars by 2012. Student debt now makes up close to 9% of all consumer debt, second only to mortgages, that is up 3% since 2004 as the cost of going to college and number of students requiring loans has increased.

Neil Irwin, a columnist for the Washington Post suggests that many college graduates are really struggling with debt once they get out of college and try to do things like buy a car or own a home. Irwin says: “with the overhang of (college) debt, it’s much harder to do that. The challenge for these graduates coming out with these huge burdens of debt is can they be integrated into the U.S. economy and really become fully fledged members of society when they start out with these tens of thousands of dollars in debt overhang.”

The number of students taking out loans to finance college has been increasing in recent decades, with the figure now up to 6% of students taking out loans, averaging above $25’000. Paying back this large sum of debt means that students have to delay other purchasing decisions including buying a house and car, or worst still the student defaults on the loan and has serious repercussions on their financial standing.

Having so many young people carrying significant college debt impacts their ability to spend money in the local economy which goes on to slow the economy as a whole. Despite the move by the Senator to reduce interest rates, Irwin claims that interest rates may not be the problem. Exploding college costs are more likely the issue with the size of college loans getting bigger every year.

Irwin claims that tuition costs must go down if the college debt issue is to be tackled: “The trick is to find a way to reduce college costs not just in terms of interest rates but also in terms of the actual tuition that students are facing so they don’t end up worse off even as you lower interest rates”.

The government is reaping an extraordinary amount of money from interest on student loans, over $50 billion expected in 2013. That leads some to suggest that some of that profit should be redirected back into educating college students and high school students on how to minimize their college debt burden.

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