The Obama administration has released a new report arguing the massive $1.3 trillion student debt load is helping the economy.
“Investing in Higher Education: Benefits, Challenges, and the State of Student Debt” is the work of the White House Council of Economic Advisers (CEA). The 78-page report argues that, despite the widespread belief student loans are dragging down young U.S. workers, the surge in debt has actually been a boon for the United States.
“Federal student loan programs help expand access to high-quality education, which has long-lasting benefits to individuals as well as the overall macroeconomy through higher labor productivity and faster GDP growth,” the report says.
Student debt has nearly doubled during President Barack Obama’s tenure, surpassing credit card debt as the second-largest source of debt in the U.S., behind home mortgages. Polls and other measures of economic activity indicate that many millennials have delayed marrying, buying a home, or starting a family because of their student loan burdens.
Such analyses have it all wrong, the new report says. In fact, people with student debt are far better off than those going without it, and on balance the debt is boosting the American economy.
“Additional student debt, as an investment in education, is associated with additional income, putting many households in a better position to buy homes or start businesses,” it says. “By age 26, households with student debt are more likely to buy a house than those that did not attend college. By age 34, college attendees with and without student debt are equally likely to buy a home, and both much more likely than those without a college education.”
CEA’s analysis is backed up with a comparison of current student debt levels with the expected dividends of getting a tertiary degree. While the average student leaves school with less than $50,000 in debt, a person with a bachelor’s degree is expected to earn about $500,000 more than a high school graduate over the course of their working career.
Interestingly, the report goes against a major theme in Democratic presidential candidate Hillary Clinton’s campaign. Clinton has touted a plan to make public college in the U.S. a debt-free endeavor. More recently, she has proposed a plan to make public college completely free for all families earning below $125,000.
The report does focus on one group of borrowers who are being harmed disproportionately by student debt: those who borrowed for school but never graduated. This group of people is experiencing severe economic dislocation, because they lack the improved income offered by a college degree but are still trying to pay off thousands in debt. Ironically, the White House report notes, it’s people with the smallest debt amounts who are most likely to default on their payments.
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