Student loans have seen almost 157 percent in cumulative growth over the last 11 years

By Bob Roseth

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All told, there’s a whopping $1.4 trillion in federal student loans out there. Experts and analysts worry that the next generation of graduates could default on their loans at even higher rates than in the immediate wake of the financial crisis.

Federal student loan debt currently has the highest 90+ day delinquency rate of all household debt. More than 1 in 10 borrowers is at least 90 days delinquent, while mortgages and auto-loans have a 1.1 percent and 4 percent delinquency rate.

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Students attending for-profit universities and community colleges represented almost half of all borrowers leaving school and beginning to repay loans in 2011. They also accounted for 70 percent of all defaults. As a result, delinquencies skyrocketed in the 2011-2012 academic year, reaching percent.

Those most at risk of delinquency tend to be, counter-intuitively, those who’ve incurred smaller amounts of debt. Graduates who leave school with six-figure degrees that are valued in the marketplace-like post-graduate law or medical degrees-usually see a good return on their investment. Zip codes with higher population percentages of racial minorities had far higher delinquency rates Lincoln financiNE payday loans, and that the correlation of delinquency with race was actually most extreme in middle-class neighborhoods.

Undergraduates saw interest on direct subsidized and unsubsidized loans jump to 5 percent this year-the highest rate since 2009-while students seeking graduate and professional degrees now face a 6.6 percent interest rate, according to the U.S. Department of Education.

Student debt has delayed household formation and led to a decline in home-ownership. Sixteen percent of young workers age 25 to 35 lived with their parents in 2017, up 4 percent from 10 years prior.

Recent Congressional Budget Office estimates indicate that the federal government will make $81 billion off of student loans over the next decade.

The Levy Institute recently published a proposal for cancelling all outstanding student debt. The federal government would write off the debt for which it itself is the creditor (the majority of outstanding student loans), and it would assume payments on behalf of borrowers for those loans that are held by private lenders. The population’s student loan balance would be reduced to zero-a radical solution to the student debt crisis, but one that deserves serious attention, given the radical scope of the problem.

Economists believe that student debt cancellation would be modestly stimulative to the macroeconomy, increasing annual GDP by $86 to 108 billion per year. It would increase the demand for labor and therefore slightly reduce the unemployment rate. They argue that student debt worsens household balance sheets, and that weakness is one of the key mechanisms holding back economic growth. They go on to say that it amounts to around the same size in net dollar costs to the government as the recent tax giveaway to the rich, although with a very different beneficiary population.

Several states and institutions have adopted variations of the free college program. More than a dozen states now offer grants, often called scholarships, promising to help qualifying students pay for some or all of their college education.

The University of Michigan has created the High Achieving Involved Leader Scholarship, promising qualified low income students will have a four-year education without paying tuition and fees. Research has shown that the program’s guarantee was instrumental in doubling the number of low-income students at the university.

Tennessee Promise, adopted in 2014, offers two years of tuition-free community college or technical school to all high school graduates. The program, which had bipartisan sponsorship and was touted as a way to stimulate economic development, has proven to be very popular.

However, this program and others have been criticized for not doing enough to reduce affordability barriers for low-income students: Nationally, tuition and fees account for just 20 percent of the cost of community college.

Since most of the programs are relatively new, it is premature to evaluate their effects. But an article by the Hechinger Report points out that most programs do not give low-income students four years of free college, and, failing that, it’s increasingly clear that free college,’ as it is often currently implemented, may be more of a marketing message than a policy that will boost the education level of the future American workforce.

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