The dark side of higher education: student loan debt

Article was written by Amy Greil, Community Development Extension Educator. 
Originally published in The Kenosha News.

Today I am exploring, in public with trepidation, the implications of the dark side of my higher education experience: Student loan debt.

While I, like presumably many former students, would not trade that experience/opportunity for the world, nonetheless I have resigned myself to the realization that my previously accumulated debt has — and will continue to — dramatically shape my life decisions (when to marry, buy a house, have children, etc). Indeed, I am not alone. Data consistently indicate that, nationally, student debt is growing at an alarming rate.

Numerous reasons for this explosion can be found, such as:

Tuition and fees in response to declining tax dollars going to public universities.

A growing number of students from lower and middle-income families seeking higher education.

The fiscal illiteracy of students.

A growth in predatory for-profit colleges, among others.

But that is not all.

Not only do growing levels of student debt affect an increasing number of individuals (like me), this debt burden has broader implications for the economic health of communities (like those in Kenosha County) that are explored below.

Changes in labor market

Some academics would argue that students with higher debt levels will seek any employment opportunity to ensure some source of income.

This could mean an expanded demand for lower-wage employment (any job is better than no job). Or, perhaps indebted former students will seek higher-paying — but for higher risk — employment to compensate for the debt repayment obligations.

Other changes in the labor market may indicate trouble for our democratic institutions of civil society: Entry-level teaching positions’ salaries may be insufficient to cover both living costs and debt repayment, so we will see fewer qualified teachers going into the field of education in our local school districts, for example.

Reduced entrepreneurial activity

There are at least three potential mechanisms that could link student debt and rates of entrepreneurship:

First, people who were inclined to start a business before assuming student debt may be deterred because of perceived success risks associated with entrepreneurship.

Second, labor income from new ventures is uncertain in the first few years. Without a guaranteed income, former students may be unable to make debt payments and support living costs.

Third, new businesses may be undercapitalized because student debt limits the ability of the potential entrepreneur from securing enough financing. The rapid growth in student debt levels may, then, correspond to the national and statewide slowdown in new business formation.

Homeownership delays

The growth in wealth through equity over time due to homeownership is a key principle of economics. High student debt is shown to be a deterrent to homeownership because of the inability to secure financing.

And/or there may be a rising desire of individuals to choose to be less encumbered if alternative employment opportunities become available in a distant location that help them pay down debt faster.

Either way, the predominance of the empirical analysis supports the notion that higher levels of student debt are a deterrent to homeownership, which may signal trouble for a growing economy.

All told, something has to give. Fortunately, several policy considerations exist and are within reach if there is enough political will to avoid the inherently painful economic shifts and slowdowns that are already starting to emerge.

Review the full scope of this original analysis performed by colleagues at UW-Madison Extension at
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