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Student Debt: A Growing Economic Threat to Individuals and the American Dream

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Richard T. Moore
April 15, 2019

The contrasting headlines about college admissions scandals and student debt underscore the gap between the rich and the poor in America. On one hand, wealthy parents are alleged to have spent millions to gain admission to elite colleges for their children. At the other end of the scale, more than 40 million other parents and children owe many millions more in paying for college education and any post-graduate studies. In fact, the $1.5 trillion dollars of student debt dwarf the significant amounts said to have been used to gain admission to college for a privileged few, as Zack Friedman, a senior contributor to Forbes explains.

When I recently addressed a class entitled Business, Government and Regulation at Nichols College in Dudley, Massachusetts, a question posed by a junior majoring in economics highlighted the two issues that led to my doing a little research. This research was especially about the matter of student debt and what it means to the overall economy. In his comprehensive September 2018 annual letter to shareholders, JP Morgan Chase CEO Jamie Dimon reviews the issues facing the United States economy and potential solutions. On student lending debt, he writes, “Irrational student lending, soaring college costs, and the burden of student loans has become a significant issue. The impact of student loans is now affecting mortgage credit and household formation—a $1,000 increase in student debt reduces subsequent home ownership rates by 1.8%. Recent research shows that the burdens of student debt are now starting to affect the economy.”

Proposals by several leading Democratic presidential candidates for some form of free college tuition offer hope for future college students and their families. In fact, many of these proposals are affordable for taxpayers. However, they generally don’t address the mountains of student debt already on the books. Beyond limiting the ability of home ownership, as Dimon mentioned, student debt has serious impacts on issues such as the spiraling cost of health care and the ability to attract the best candidates for positions in professions like teaching and public service. Educational debt pushes most medical students into specialties rather than primary care, which  has lower reimbursement levels, so that these students can more easily repay loans. Patients are facing the prospect of obtaining needed primary care through specialists, thereby increasing the cost of care. Chronically low salaries for teachers and many other public service professions can place these fields out of reach for talented college graduates who need to earn higher incomes to repay their student debt. This deprives students of the future and taxpayers, in general, of some of the best and brightest who can offer high quality service to those they serve.

There are, of course, loan forgiveness programs aimed at reducing the burden for those entering professions where the demand for candidates and the public benefit is greatest. However, such programs need increased federal investment and a streamlined application process. For example, the forgiveness rates for medical student debt (which usually is on top of undergraduate debt) today is at $120,000—considerably less than the more than half-million dollars that the American Association of Medical Colleges estimates must be repaid over the 25-year period following residency. Add to that burden the fact that receiving the maximum loan forgiveness level requires a commitment to practice in underserved regions at salaries around $125,000 per year. One hopeful sign is the recently announced plan of New York University Medical School to be tuition free. NYU’s program is among a handful of efforts that may pressure other major medical schools to boost their endowments to create similar programs that would attract minority and low income applicants.

Home ownership and a college education for one’s children are traditionally cited as major parts of the American Dream. The burden of student debt, the escalating cost of college and possibly graduate or professional education are making achieving that dream more difficult to attain. Parents may begin to rethink the importance of sending their children to college. Children who must bear all or part of that cost might decide to forego the experience. While not everyone needs a college education to attain a good job, the estimated increased earning power of a degree is currently an enticement. Fewer students seeking a college education during a time when traditional college-age student cohorts are declining or, at least, leveling off, has its own impact on the economy. Not to mention this may increase competition among colleges for enrollment goals and, potentially, lead to some additional college closures for schools dependent on tuition income.

As Dimon noted in his report to shareholders, we need other programs to, “Ameliorate the burden of student loans.” He stated that, “Direct government lending to students has grown almost 500% in the last ten years.” Perhaps even federally-subsidized lower interest rates on such loans could be targeted to those professions or careers that are needed in the economy, similar to the loan forgiveness programs. Solving the student debt crisis must be at the top of the national agenda.

Author:Richard T. Moore has served in both elective and appointed public office at local, state, and federal levels of government. He served for nearly two decades each in the Massachusetts House and Senate, as well as being chosen as President of the National Conference of State Legislatures. He also served in Washington, DC as Associate Director of FEMA in the Clinton Administration and as a Presidential Elector in 1992. A former college administrator and adjunct assistant professor of government at Bentley University and Bridgewater State University, Mr. Moore is a long-time member of ASPA serving terms as Massachusetts Chapter President and National Council member. He was a trustee of Quinsigamond Community College, Worcester, MA (5 years) and has served as a Trustee of Nichols College, Dudley, MA for the past 20 years.

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