The Indebted Generation Didn’t Ask For This

The looming debt crisis stands like a wolf at the door of the American Dream. The next generation of workers will start their careers at a disadvantage thanks to historically high debt. Young people today face a debt bubble in higher education even higher than total household credit card debt. Although the public is now beginning to realize the extent of the damage; proposed solutions are still in short supply.

According to the National Center for Education Statistics, the number of post-secondary enrollees increased from 12.2 million students to 21 million from 1985 to 2011. That’s a 42 percent increase compared to a national population growth of 23.6 percent over that same period. Unfortunately, the growth of college tuition has far outpaced the growth of enrollment; since 1985 college tuition has increased by 538 percent according to the Labor Department. This staggering jump has caused the average student borrowing to rise from $22,000 in 2000 to $29,400 in 2013.

In total, student loan debt has topped a whopping $1.1 trillion as of 2013. It even surpasses consumer credit — mostly comprised of credit card debt — which stands at $870 billion. Meanwhile, students who borrowed for a bachelor’s degree and work more than 35 hours per week rose from 52 percent in 1992 to 74 percent in 2008. So much for the conventional wisdom that “young people these days” are lazy.

And despite their debt and hard work, recent college grads still face an unemployment rate of around 13.5 percent. To make matters worse, the jobs they do have, most don’t like. Only 28 percent of young workers were satisfied with their jobs in 2013.

There has been a similar increase in delinquent loans as the number of people who borrowed federally backed loans and defaulted within two years rose from 8.8 percent in 2009 to 10 percent in 2010. The trillion dollar question now is: “how long can this last?”

As for why this is happening, there is no one answer. Higher education is an extremely complex sector, with many moving parts, practices, and institutions that contribute to rising costs. Certainly, a contributing factor to the current situation is the recent spate of state budget cuts which have caused schools to pass costs onto students. However, this is far from the only factor.

Another notable piece of the puzzle is the Bennett Hypothesis 2, originally proposed by President Reagan’s Secretary of Education in 1985, which puts the blame on subsidized student loans and government aid. The theory stipulates that increased access to subsidized federal loans does not stem the tide of ballooning tuitions. In fact, evidence shows that it exacerbates the problem. According to the Center for College Affordability and Productivity, aid aimed at students — like education tax credits and subsidies — incentivizes universities to raise their tuition costs. For example, take the rapid rise in student aid and the lack of corresponding one in college affordability:


              (Priceonomics, 2013)

Millennials, of which this author is one, did not choose this system. As a generation, we came of age in a time of pessimism and uncertainty brought about by the failed policies of previous generations. Both Democrats and Republicans merely propose more bailouts, more loans, and generally more of the same ineffective policies if they bother to propose anything at all. Elizabeth Warren’s proposed“solution” demonstrates how the nation’s power brokers are more focused on scoring populist points than changing the broken system. She appears to think that additional taxes and cheaper student loans will magically reverse the forces of supply and demand.

Fortunately we live in a world where the politicians do not have a monopoly on solutions. The Cato Institute’s analysis on the cost lowering effects of online courses shines a ray of hope for those who want to make education more affordable. With the increasing prevalence of online classes and cross-state enrollment, universities will be able to offer affordable options. In fact major institutions, like Harvard and MIT, are already expanding their free online course programs.