One thing that isn’t discussed enough on this theme is the effect of debt-induced immobility has on macroeconomic dynamics.
From Stiglitz, hero of heroes:
The crisis that is about to break out involves student debt and how we finance higher education. Like the housing crisis that preceded it, this crisis is intimately connected to America’s soaring inequality, and how, as Americans on the bottom rungs of the ladder strive to climb up, they are inevitably pulled down — some to a point even lower than where they began…
America is also exceptional among comparable countries for the high cost of a college degree, including at public universities. Average tuition, and room and board, at four-year colleges is just short of $22,000 a year, up from under $9,000 (adjusted for inflation) in 1980-81.
Compare this more-than-doubling in tuition with the stagnation in median family income, which is now about $50,000, compared to $46,000 in 1980 (adjusted for inflation).
Like much else, the problem of student debt worsened during the Great Recession: tuition costs at public universities increased by 27 percent in the past five years — partly because of cutbacks — while median income shrank…
It was not surprising that total student debt, around $1 trillion, surpassed total credit-card debt last year…
Student debt also is a drag on the slow recovery that began in 2009. By dampening consumption, it hinders economic growth. It is also holding back recovery in real estate, the sector where the Great Recession started….
As bad as things are, they may get worse…College costs will continue to rise far faster than incomes. As has been repeatedly observed, all of the economic gains since the Great Recession have gone to the top 1 percent…
*If the Federal Reserve is willing to lend to the banks that caused the crisis at just 0.75 percent, shouldn’t it be willing to lend to students, who will be crucial to our long-term recovery, at an appropriately low rate? The government shouldn’t be profiting from our poorest while subsidizing our richest. A proposal by Senator Elizabeth Warren, Democrat of Massachusetts, for lower student-loan interest rates is a step in the right direction.*
But a real long-term solution requires rethinking how we finance higher education.
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