Does Student Debt Work Against the Public Interest?

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Of late, the issue of an impending student debt crisis has generated quite a buzz in the media. Sen. Elizabeth Warren (D-Mass.) brought the issue into the spotlight when she took the discussion to Congress again this year, although she failed to get legislation through the infamously gridlocked Senate. Her proposal to lower interest rates on federal student loans was shot down despite the delinquency rate on the $1.11 trillion in outstanding student debt hitting 11 percent this May.

But delinquency isn’t the only problem associated with such a massive debt load. Studies carried out in the last couple of years have shown that the consequences of carrying significant student debt go much beyond the risk of repayment default. For example, student debt can severely impact the career choices that graduates make and the wealth that they create over lifetime. Furthermore, significant student debt burdens can disqualify people from mortgages and auto loans, which are often necessary to establishing a household.

But perhaps worse than anything else, student debt burdens have weakened the entrepreneurial spirit among young Americans. A study carried out by Brent W. Ambrose of Pennsylvania State University and Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia, published on March 29, found a one standard deviation increase in student debt for the number of one-to-four-employee businesses by 25 percent on average between 2000 and 2010. Simply put, higher student debt meant that fewer students were willing to take a leap and start their own business.