Researchers from the Urban Institute have released a new study exploring the demographic boundaries of student loans and their impact on the U.S. economy.
The study, by Caroline Ratcliffe and Signe-Mary McKernan, analyzed which demographics bear the highest burden of student debt, what borrowers are afraid of, their ability to pay loans back, and how this phenomenon has increased over the years.
Since 1989, student loans have become the second most prevalent debt held among 29- to 37-year-olds in America. The debt is dispersed across demographic lines, with 16 percent of whites carrying student loan debt, 34 percent of African Americans doing so, and 28 percent of Hispanics holding it.
One finding showed that roughly half of students with debt did not finish their degrees. The problem with this situation is twofold: Not only are students leaving school early — before having developed a robust skill set — they are doing so with an amount of debt almost assured to make life harder. Average student debt hovers around $26,000 dollars.
This phenomenon isn’t limited just to the U.S., either. Youth in Greece face a 60 percent or higher unemployment rate and are losing critical time to develop essential skills. While opportunities in America are still more abundant, and unemployment lower, debt is a substantial barrier to development — especially without a college degree.
Ratcliffe and McKernan took a look at the wide-ranging economic problems associated with student debt, which include the inability to start a retirement fund and build assets for the future; delaying starting a family; reduced household spending; and the suppression of entrepreneurship and small-business growth.
The study’s authors found a correlation between the rise of student debt and a decline or slowdown in other forms of debt. Debt from owning a car has risen only $302 dollars per person since 1989, with credit card debt leading that by more than $1,215 per person. Other debts, including mortgages and loans for businesses, were down $2,078 in the same period.
Ratcliffe and McKernan propose a few modest tools to help lower the burden of student debt. They recommend expanding the scope of Pell Grants to more adequately reach families in need of them, as well as providing the grants in larger amounts. Moreover, they advocate expanding refundable tax credits to low- and moderate-income families to help make college more affordable.