Could fear of looming debt discourage choosing college?
In an overall gloomy report from Moody’s Analytics, it’s become painfully clear that students who borrow for college will find themselves faced with more debt than ever before. The report says that while the default rate on mortgages, auto loans and credit cards has improved, it has only gotten worse for student loans. That could be because student loan origination standards were not tightened in the way they were for other types of consumer loans during the recession:
Part of this may be because the federal government ensured that lenders had funds to lend to students throughout the recession. With no supply constraints and a federal guarantee taking losses in the event of a default, lenders had little need to curtail their lending and every incentive to expand it. This permitted borrowing to remain robust at the cost of poorer performance.
Students in the northeast part of the country, brace yourselves. The report says you have an average of $8,337 to $12,701 in student loan debt in comparison to students in other parts of the country who waiver between $5,390 to $8,337. The cost of education has shot through the roof over the last decade, more than doubling since 2000, according to the report.
While more people may be choosing to go to college because they see it as an investment that will help them get a better job, it also means more of the future workforce will find itself with looming debt. The job market is still bleak, even for people with those diplomas. Eventually, that could end up discouraging students from certain higher education options, leading to a more uneducated workforce:
Fewer people may pursue higher education should the returns fall and the required debt burdens continue to rise. The implications for the macroeconomy of a decline in higher education enrollment are twofold. In the short run, weaker demand for educational services would be a drag on consumption, at a time when the economy continues to suffer from a shortfall in aggregate demand. Longer term, a less educated work- force would necessarily be less productive, putting the U.S. at a disadvantage relative to other countries.
The report concludes by saying, “Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.”
You might want to be sure you can do that before taking on the responsibility (and debt) of college.