Bear (heh) with me here. I was digging through some congress bills at work today when I stumbled upon something interesting - something golden. Enlightenment, if you will. S.4232, 113th Congress, aka the Bank on Students Emergency Loan Refinancing Act.
To put it briefly, the act was calling for changes to student loans, to allow borrowers to refinance unpaid debt and thereby alleviate the growing pressure of tuition on middle- and lower-class families.
Here's a brief .pdf that makes arguing points in support of the bill..
Ultimately, the bill was never passed - but the arguments for it remain.
Key federal economic agencies like the Federal Reserve, the Treasury Department, and the Consumer Financial Protection Bureau have weighed in on the dangers of exploding student debt. This debt is stopping a growing proportion of families from buying homes, saving for retirement, and making purchases that will keep our economy on the road to recovery
Sound familiar? How many articles have come out asking about how and why millennials are "killing" major industries? (if you haven't kept up, this marketwatch article makes for a nice recap.) It's easy to see that student loans put economic pressure on millennials, and perhaps change their spending habits in interesting ways.
But besides small spending behavior changes, student loans are killing spending altogether.
Let's take a look at some recent data.
44,000,000 Americans with student loan debt. Average loan delinquency rate of 11.2%.
$1,440,000,000,000 estimated total U.S. student loan debt.
"In 2012, 71 percent of students graduating from four-year colleges had student loan debt:
Represents 1.3 million students graduating with debt, increase from 1.1 million in 2008 66 percent of graduates from public colleges had loans (average debt of $25,550) 75 percent of graduates from private nonprofit colleges had loans (average debt of $32,300) 88 percent of graduates from for-profit colleges had loans (average debt of $39,950)"
"...the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year."
Combined with inflation and an overall lack of wages, the real cost of college is growing almost exponentially.
The ultimate effect? Macroeconomic slowdown. Let's break it down:
- Tuition is rising.
- Wages for graduates have not grown in pace with tuition / inflation.
- Graduates are left with less money in their pockets to spend.
- The businesses that serve a younger audience begin to feel pressure; their usual customers can no longer afford their products / services.
- These businesses then see declines in revenue, forcing them to slow operations and potentially lay off employees.
- The cycle spirals.
If the market is driven by money (and it is), then it's bound to happen. Let's look back to our key players - the education industry, and student loan providers.
Colleges and universities are in a wonderland of profitability - the public has committed itself to paying more and more every year for a service that we've decided is 'essential' to a successful life. While other industries that market towards young people are suffering, the education industry has yet to feel the pain - colleges will be the last thing that the current rising generation gives up for economic reasons (since we bombard children with the idea that they will never be successful without a college degree, and everyone wants to make at least some money). If motivated by money, colleges have no reason to lower tuition rates until a major economic failure (that disrupts loaners) forces them to do so.
Loan providers, too, have little reason to change. In 2014, the U.S. government stood to profit over $60,000,000,000 on loans from 2007-2012 alone (http://ift.tt/2rXMqmf). That type of money isn't easy to give up, even for a country like the United States - and nobody is calling for them to do the right thing here. They won't feel any reason to change until returns on defaulted loans drop to the point where no one purchases the outstanding debt. As mentioned before, college (and therefore, student debt) will be the last thing the current generation gives up for economic reasons - meaning that by the time repayment plummets, other industries will have already been affected by several quarters (or more) of revenue loss due to lower spending by millennials.
I started writing this hours ago, and I'm too tired to tell if it's coherent. I'm just kind of pissed off that my generation is blamed for not buying McDonalds when we clearly have other expenses to attend to.
Submitted June 08, 2017 at 12:39AM by loveCars http://ift.tt/2sVTD3P
