Opinion: Student Loans Are A Drag On The Economy And Society

"The shift from greater public funding of higher education to individuals financing their own education through debt has put more risk on individual students. But it also has potentially negative social and economic effects that spread beyond the college campus," Josh Freedman writes in a Forbes opinion piece.

"While loans are intended to expand college access to a broader population, the nature of risk that they entail also produces the opposite result. Low- and middle-income students worried about the consequences of taking out a loan will be more likely to decide that college attendance is not worth the risk. What we intended as a mechanism of educational expansion, then, is working at cross-purposes with itself. ...

In other words, debt levels are high across the board and rising – even as households have been trying to pay down all other forms of debt. The hypothesis that student loan debt affects household spending in the economy appears very plausible. As student loan levels continue to pile up for students of all incomes, the burden of interest payments in addition to paying back the principal of the loans will serve to constrain the economy even more. And because the student loan system fails to stem the cost problem at colleges and universities, it creates a vicious cycle: the loan system allows colleges to raise prices, which causes more students to take out loans. States, facing budget pressures, have also pulled back on investment, putting even more risk on students and further increasing the need for loans.

The risk and burdens that come from forcing students to take out debt up front and pay it back later is problematic from head to toe (tassel to hem, one might say). To create a better system of higher education, we need to look at alternatives to the current debt-financed model."

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