How the Student Loan Crisis Affects Americans

Student debt has surpassed total revolving credit in the United States. Total student debt is above $1 trillion per the Consumer Financial Protection Bureau, and total consumer revolving credit such as credit card debt was exceeded by student debt in late 2011 per the Federal Reserve Bank of New York.  Several economic factors have also combined to compound the negative effects of this debt. These additional variables have made student debt a problem for many new and old graduates alike.


According to the Institute for Education Sciences, total education costs at four year institutions have risen 600 percent since 1980. For example, total tuition, room and board at a public four year academic institution cost $2,550 in 1980 using current dollars, but costs $15,014 in 2010 per the IES. This large rise in the cost of tuition is partly accountable to inflation, yet when using constant dollars adjusted to the Consumer Price Index, a measure of inflation, the tuition costs still more than double over the same period of time.    


Another factor that affects the cost of student debt is accrued interest. National Public Radio states some school loans were subsidized via lower interest rates under the College Cost Reduction and Access Act of 2007. That however, will change and lead to a doubling of interest rates if those tax cuts expire. Both Republicans and Democrats in Congress have sought to extend this benefit, but under different conditions that have led to political gridlock. As a result, and if the interest rate subsidy is not extended, the cost of student debt will rise and put additional cost pressure on students and graduates.


The average size of student debt has also risen. By Q3, 2011 the average size of student debt was $23,300 per the Federal Reserve Bank of New York. Moreover, according to AlterNet, in 1992 the average size of undergraduate debt was $9,200 less than half the $18,900 in 2002; similar trend is demonstrated by the New York Times. It is evident the size of student debt has risen along with the cost. However, the size of debt has not increased as fast as cost meaning students have been able to keep their costs down over the historical period.

Each year a vast amount of new college students attend school with the hopes of becoming trained for a career. The IES has stated 19.7 million students attended colleges in the United States in 2011. However, if the job market is tight, these former students face the scenario of little or no income with which to pay off their student loans as they become due. This causes debt to negatively amortize in some cases which only amplifies the magnitude of student debt.