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).

The White House Says Student Debt Is Helping the US Economy

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.

Latest articles

German chip maker Infineon Technologies has reportedly raised 1.55 billion euros (~$1.74 billion) in capital by selling its shares to fund its acquisition of Cypress Semiconductor (CY). Infineon has sold ~113 million new shares at 13.70 euros each.

As of June 18, Dunkin’ Brands (DNKN) was trading at $80.07, an 8.9% rise since reporting its first-quarter earnings on May 2. Also, DNKN was trading at a premium of 29.8% from its 52-week low of $61.69 and a discount of 1.6% from its 52-week high of $81.40.

19 Jun

Are Lower Oil Prices Weighing on ExxonMobil Stock?

WRITTEN BY Maitali Ramkumar

ExxonMobil (XOM) stock has fallen 7.1% in the second quarter so far. Let's review ExxonMobil's stock performance in comparison to oil price changes and equity market movements in the quarter.

19 Jun

As Facebook Unveils Libra, MSFT and CRM Join a Blockchain Group

WRITTEN BY Mayur Sontakke, CFA, FRM

On June 18, Facebook (FB) launched Libra, its own cryptocurrency. On the same day, CoinDesk published another piece of blockchain news that didn’t receive as much fanfare as Facebook’s Libra news. Was the timing a coincidence? We think not.

Uber Technologies (UBER) has picked Melbourne as another test site for its flying taxi service known as UberAir. The Australian city is the first international test site Uber has chosen for its flying taxi service. The addition of Melbourne brings the number of test locations Uber has picked for its UberAir service to three.

Lyft (LYFT) and Uber Technologies (UBER) are pushing back against California legislation that would require them to recognize their drivers as employees rather than independent contractors. The legislation would require companies like Lyft to give their drivers the compensation and benefits spelled out under California’s employment regulations.

172.31.71.127