Student loans are ruining the economy

Why are student debts and delinquencies continuing to rise? One answer is that the cost of higher educations is increasing. Between the 2000-2001 academic year and the 2010-2011 academic year, the annual cost of a degree at public and private 2- and 4-year institutions rose 70%, from an average of $10,820 to $18,497, according to data provided by the federal government’s Institute of Education Sciences. Families’ incomes aren’t rising at the same rate, so students are forced to take out more loans.

On the plus side, more students than ever before are attending college, which is a certainly a good thing, as van der Klaauw points out, even if it is a contributing to factor to overall debt increasing. A degree is usually worth the cost of college, even if the price tag is increasingly tough to bear. “It is always important to keep in mind that the average returns to a college degree remain high,” van der Klaauw says.

But a more pernicious explanation of rising debts is that outstanding student loans tends to linger for years, as interest rates accumulate debt and students decide to pay off other loans first. Student debt piles on because it takes years to pay them off, and they can’t afford to pay back such hefty loans until later in their careers. For example, some dentistry school graduates sometimes intentionally choose to default on their student loans in order to pay the staggeringly high costs of opening their own dental practice, Rong says.