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Monday, 01 July 2013 09:10

Growing Student Loan Debt of Approximately $1.1 Trillion Is Hampering America's Future

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stdebt7 1As we approach the self-congratulatory celebration of America's liberty -- in a time of increased government surveillance and reining in of that liberty -- it is also a sobering note that America's college graduates, long a key to the US's economic innovation and strength, are saddled with an approximate $1.1 trillion debt.

This gargantuan financial liability, which according to a timely USA Today article, means an average balance for graduate debt of $27,547.  This does not include the interest rate amount (which could possibly double for federal loans if congress doesn't act soon), which balloons to a much higher actual financial payout over years.

Due to the weakened economy, USA Today reports that there was a 31% increase in the number of student loan borrowers between 2007 and 2012.  Now, an astounding 65% of college and university students graduate with debt, up from 46% in 1993.

The net result: America's economy potentially is weakened even further by graduates who can't afford to buy housing, start families, and invest in small businesses, for example.  As Hadley Malcolm of USA today reports:

A report out last month from the Consumer Financial Protection Bureau suggests myriad ways in which student loan debt may be having a ripple effect on the economy. Based on more than 28,000 comments submitted by consumers and industry leaders, the report found that debt held by millions of Millennials may be forcing this generation to:

•Put off home ownership
•Divert money from retirement accounts
•Impede the ability to take small-business loans
•Forgo securing car loans

Though hard data linking student loan debt to a delay in these financial commitments are elusive, personal finance experts say that when one is saddled with any kind of debt, economic lives can grind to a halt. The consequences of massive student loan debt — a trillion dollars and counting — could threaten the standard of living for this generation and harm the country's economic competitiveness.

As the federal government and states jump on the austerity express and cut educational funding -- thus raising the personal cost and debt burden of attending college and graduate school -- this Fourth of July, amidst the "bombs bursting in air," we should talk a few moments to reflect on how those who advocate cutting our educational system are sticking a dagger in the future of America.

But the worst of the legacy of the Koch brothers, Pete Petersen, and ALEC may be yet to come, as noted in the USA Today article:

As loans become the go-to way to finance education in the USA, experts say, this generation could be the canary in the coal mine for what the nation might see going forward. Today, Millennials are paying the price, but the loan crisis, they say, has a much longer tail.

"If student debt is a roadblock to economic opportunity, that really undermines a philosophy of how America has moved forward and prospered," [Rohit] Chopra [student loan ombudsman for the Consumer Finance Protection Bureau] says. "So many Americans have taken risks to start small businesses, to buy a home, and that has been a traditional way in which our economy has moved forward and people have achieved economic milestones."

There's also the potential for a cascading effect for those who have so much debt that they're on 20-year repayment plans, rather than standard 10-year plans, Kantrowitz says.

"That means they will still be paying back their own student loans when their children enroll in college," he says, noting that the cycle will probably then repeat: They will be unable to save for their children's education, so those kids will be forced to take loans and graduate with even more debt.

So when you are dazzled by the fireworks on Thursday, remember there's a price to pay for saddling the future American college-educated workforce with increasing debt.

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As the USA Today report concludes:

The consequences of a rising debt load may not be immediately noticeable in the years just after students graduate, but the long-term impact could be crushing.

"It's not one of those things that matters a lot in any given year, but over a couple decades or generation or two, it matters a great deal," [Mark] Zandi, [chief economist at Moody's Analytics says]. "It means that they'll have less spending power. It means that they'll be less financially prepared to send their own kids to college or for their own retirement down the road. It just makes for a less healthy economy and a more vulnerable one."

That's a big price to pay for increasing the profit of the the super wealthy by, in part, increasing the personal debt for educating our future generations.

(Photo: Occupy*Posters)