Maybe the college student debt burden isn't so crushing after all. That's the surprising gist of a new study by economists at the president's Council of Economic Advisers (CEA).
It's surprising because burgeoning student debt has become a new economic worry and a political "cause celebre." It adds to the hurt of millennials, who already face a tough job market and are living with parents in record numbers. Defaults could go higher. Strapped borrowers won't qualify for home loans. The recovery will suffer. Both Bernie Sanders and Hillary Clinton made proposals to lighten the debt load. What are the facts? Clearly, college student debt has exploded. Since 1996, outstanding loans have risen from $200 billion to $1.3 trillion, says the CEA. The number of borrowers has nearly doubled over a shorter period, from about 23 million in 2004 to more than 40 million now. Counting undergraduates at community colleges and four-year colleges, more than half (56 percent) borrow. Almost all these loans are backed by the federal government. If borrowers default, taxpayers pick up the tab. The justification for federal support is that both individual borrowers and society benefit. College graduates earn about 70 percent more than high school graduates, a gap called "the college premium." Higher earnings make it easier to repay the loan, and the country benefits from a better-educated work force. That's the theory. The reality, as the CEA discovered, is more complicated.
The good news about this bad news is that the debt levels aren't yet high enough to depress the overall economy, the CEA contends. As a share of the economy, student debt today is about one-ninth the size of mortgage debt in 2007, when the country was on the brink of the financial crisis. The smaller student debt today curbs the danger to disrupt the economy.
For example, student debt didn't cause home buying to collapse among the young. True, homeownership for those 24 to 32 dropped from 42 percent in 2005 to 33 percent in 2014. But the main reason, says the CEA, was an almost 20 percent decline in the earnings of recent graduates. A comparison of homeownership rates for college graduates with and without debt showed little difference — and none by age 34. The lesson of all this seems obvious. The young today don't need debt relief. They need good jobs. If those materialize, repayment rates will rise. So will homeownership rates. It's as simple and difficult as that. Â Â Â ÂÂ Â Â Â
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