WASHINGTON – Economists in the world now agree that student debts are slowly becoming a drag on the economy of different countries. Although having a college-educated employee boosts the overall economy of a nation, the debts can be disastrous.
Who issues student loans?
The student debt situation is becoming a crisis that needs the attention of experts. The crisis, however, is different from the subprime mortgage crisis. During the crisis, many investors acquired loans, and they were never able to repay them. Unlike the mortgage situation, most student loan debts are from the government. Ninety percent of these loans are issued by the government, not financial institutions. This happens because the government has enough power to ensure that all the loans are repaid in full.
The American government has given the Education Department the mandate to take action if the students do not repay their loans. The organization has the power to garnish salaries, Social Security and refunds from taxation to ensure there is maximum loan repayment. This power, however, has not prevented the federal government from losing money. Policymakers and economists are very worried right now because the students’ debts are starting to drag the economic recovery.
Are there proposals to reduce student debt?
There are several possible ways to allow the students to repay their loans at reasonable interest rates. There are few private companies that are already offering these services, giving student borrowers a new meaning of life.
Negative impact of student loan debt
For many Americans, the challenging effects of student debt are just too obvious. With many such loans are forced to make monthly loan repayments. At the moment, there are more than forty-four million Americans who sacrifice a huge chunk of their income so that they can clear their debts. This money can be used in several economy-boosting services countrywide. This group of people has little money for savings, starting businesses or investing in important projects.
Students’ debts are slowing the growth of the US economy in various ways.
Student loans hold back new businesses
The growth of startup businesses in the US plays a critical role in the economic growth. When there are more student debts in the nation, there will be fewer businesses from the graduates, and this will impact the economy negatively. Most graduates say that they cannot afford to start a business without clearing a student debt.
There are few graduates who are brave enough to start businesses before they can clear their realistic loans. Whenever this group tries taking loans for their new businesses, they are denied funds because of their unpaid debt.
Student debts stifle spending
Most of the graduates who took student loans choose to spend less money. In most cases, these people cannot even afford to purchase some items they need. In a recent study, researchers discovered that the student borrowers could not acquire cars and other assets because they were focusing on clearing their student loan debt.
During the holidays, things are not better for the graduates. Most of them are forced to limit their spending due to the debts they have accrued. The American economy grows when people are paying for services and goods. Limiting spending for the citizens affects the economy negatively.
The housing market slow-down
Borrowers who want to save and later on purchase a home have to halt their plans so that they can deal with their student debt. Policymakers say that over 40% of student borrowers will experience delayed home ownership. Over twenty-seven percent of these borrowers are still living with their parents because they cannot afford a home.
When there are few homebuyers, the price of houses stagnates. The homeowners have lower chances of creating equity in their houses. The house purchase process is directly connected to the mortgage market. When there are few homebuyers, there will be fewer getting mortgage loans. Banks and other financial institutions depend on this form of revenues.
How student loans positively impact the economy
Although student loans hold back the graduate’s financial growth and the American economy, a recent survey from the White House indicates that the loans have been good for the economy. Here are some of the key findings from the survey:
College degrees play a leading role in raising incomes
Most people in the United States of America are able to complete their university degree because of getting student loans. After graduating, the students get higher incomes because of their qualifications.
Most of the workers who have managed to acquire a bachelor’s degree in any field can be guaranteed of one million dollars in lifetime earnings. The higher income from the graduates only means that the students will have a lot of money to spend in their lifetime.
Increases tax revenues
The former president of America introduced various programs to assist borrowers. In addition, student loans remain expensive to the American taxpayers. During a recent study, Public Service Loan Forgiveness (PSLF) Program was discovered to have cost the taxpayer more than one hundred and eight billion dollars.
Although student management programs tend to be very costly to the taxpayer, they are a great investment in the American workforce. The graduate workers in the country are viewed as more productive citizens. They’re also considered to earn more money at the end of the month. These graduates will eventually be paying more taxes to the authorities.
Student debts have their negative effects on the US economy. However, for now, the overall impact of this type of debt is a plus for the country’s economy. Things will get only worse when a college education gets more costly. Experts in the financial world say that the high costs of education will only outpace the real value of college education.
Lower unemployment
In most places worldwide, unemployment remains to be a key factor in economic growth. An increase in jobs strengthens and improves the economy. During the study, experts realized that the people who had college degrees are aware of the unemployment rates, and they are working against the odds to move up the economic ranks.
When a nation has employed more people, it means there are many who have a stable source of income. This makes it easy to keep up with the daily expenses and do things that grow the economy.