Student debt is helping the US economy, says the White House
Contrary to popular opinion that the rise in student debt is a big drag on US (VOO) (IVV) economic growth, the White House claims that student debt is actually helping the US economy (IWD) (IWF) (VEA).
Student debt has nearly doubled under the Obama Administration, as you can see in the above graph. However, much of this can be attributed to the high levels of unemployment at the time Barack Obama took office in early 2009.
During periods of high unemployment, the opportunity cost of enrolling in higher education and thus taking a student loan appears to be lower than the wages people lose from being unemployed. With fewer jobs, employers get more selective, resulting in more unemployed persons taking college courses to improve their competitiveness. Therefore, enrollment in college and graduate schools typically rises.
Student debt boosts output and productivity
In a July 2016 report from the White House Council of Economic Advisers, the Obama Administration backed up its claim about student debt helping the economy. The report said, “The main macroeconomic impact of student loans, particularly over the longer run, is via the boost to output and productivity from a more educated workforce.” According to the White House, higher student debt “does not appear to have substantially altered” macroeconomic performance.
Not as alarming as it may seem?
Interestingly, 44% of students at two-year and four-year colleges do not borrow at all. Of those who do, 59% fall under the category that borrows less than $20,000. The average undergraduate loan burden in 2015 was $17,900. The average new car loan was $30,000.
In 2014, there were just 2% of households with student debt exceeding $50,000, with about 75% of these invested in pursuing courses in law, medical, and other higher degrees that more than often resulted in higher-than-average incomes in the future. So is the picture not that alarming after all?
The report does agree that a high level of student debt may be a troubling sign for those in graduate schools or for-profit undergraduate schools. However, looking at the overall picture, the report says “the amount of debt owed by the typical student remains modest.”
Let’s look at some areas where the Obama Administration has done its part to mitigate the impact of higher education getting costlier.