White House: Student Loan-Debt Helps U.S. Economy

A new report from the White House Council of Economic Advisers provides a broad overview of student loan-debt in the United States and yields some potentially surprising conclusions: while the $1.3 trillion in total student-loan debt in the U.S. may seem like a staggering amount, the authors of Investing in Higher Education: Benefits, Challenges, and the State of Student Loan Debt contend that this is helping, not hurting the nation’s economy. The authors posit that college is best viewed as an investment that typically yields a high return, even with the high upfront costs.

The years of the Obama administration saw a proliferation in student-loan debt, but also a large increase in college enrollment, according to the report. This reflects past experiences of enrollment in college and graduate schools typically rising during periods of high unemployment such as those during the first several years of the Obama presidency, the authors note. Furthermore, during this time the cost of tuition increased at many universities due to a variety of reasons, such as declines in state funding or expensive attempts to improve educational quality. The increased cost of college is reflected in an increase in student-loan debt. 

Like many analyses of student-loan debt, the authors of the report differentiate between two types of students: graduates and those who did not finish their degrees. While graduates may carry the heaviest student-loan balances, according to the report, they are also higher earners, largely because of the debt-financed degrees that they hold. On the other hand, representing a minority of borrowers, those who did not finish their degrees did not receive a quality education that resulted in employment outcomes allowing them to pay off the debt that they incurred.

The report pays particular attention to the effectiveness of income-driven repayment plans such as the Obama administration’s Pay as You Earn (PAYE) plan, which caps monthly student-loan payments at 10 percent of discretionary income. Additionally, the report’s appendix includes useful state-by-state statistics on student-loan debt. 

SSTI previously highlighted research on the potential impacts of student-loan debt on entrepreneurship. As part of her speech last month, Democratic presidential nominee Hilary Clinton’s Initiative on Technology and Innovation proposes deferring up to three years of student-loan debt for entrepreneurs and forgiving up to $17,500 of debt if those startups locate in distressed communities. In a speech on Wednesday, Republican presidential nominee Donald Trump announced that he would be working on a plan to address student-loan debt over the course of the next month.

Read Investing in Higher Education: Benefits, Challenges, and the State of Student Loan Debt here: https://www.whitehouse.gov/sites/default/files/page/files/20160718_cea_student_debt.pdf