Student debt in today's era is not like it was in the decades of the past. To begin, the total amount of student debt in the United States has increased to $1.31 trillion in the last year and continues to climb. Since 2008, student debt has grown roughly 105 percent. There are also significantly fewer government-sponsored benefit programs catering to students repaying loans for higher education than the previous generations. This, coupled with the increased demand for high-skilled workers who hold a Masters degree or higher and the decreased demand for low-skilled workers who hold a Bachelors or below, creates a job market that further exacerbates the student debt quandary.
In this system, young adults pursue higher education and take on much more debt than their parents and grandparents needed to acquire roughly the same jobs. And due to rising competition in the US, young adults are finding it harder and harder to pay off their student debt in the years to come.
In fact, the rate at which indebted students are defaulting on their loans is increasing as delinquencies rise. This isn't really a new phenomenon as for years the Obama administration has grappled with a changing market landscape for wages and debt. The Federal Reserve has mentioned that student debt remains one of the impediments to economic growth for the upcoming future. Even the Trump administration has deemed student debt troubling in terms of finance. So where do we go from here?
Student debt is much more difficult to manage than other debts like the housing debt. In the case of the financial crisis of 2008, homes and houses were assets and upon defaulting on a loan, they were rescinded and foreclosed to be sold later. The crisis spiraled out of control after these mortgages were bundled and securitized. Thus, it created a market for mortgage-backed securities that constructed an entire social structure built on the investment into debt.
But student debt is different. Instead of hungry investors on Wall Street devising intricate financial instruments to bundle and package debt, we have a market change in which the conditions for labor are propelling a demand for higher skills. As such, more and more students are taking on debt to obtain these higher skills to meet the demand set upon them. The problem lies in the cost of this higher education. Imagine if, in the '60s, one had to pay $50k for a high school diploma in order to access blue collar jobs. Added to the fact is that the asset, in this case, is knowledge, which isn't something physical and cannot be taken away as an asset, therefore there are limited options when it comes to restructuring the equity of knowledge than the equity of a house.
The problem is significantly more complex than it sounds with relatively few modes of addressing it. However, there do remain some possible solutions that could help mitigate or remove some of these deleterious effects. The first being increased government involvement in training programs for higher skills and education to guarantee basic skills to occupy blue-collar level jobs without costing a significant amount. The other option os for increased public-private partnerships between government and universities to lower the cost of higher education and make higher education more affordable.
