AIC - Student Loan Debt

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Gregory Marks's picture

On Thursday I had the opportunity to ask Dr. Bullard of the St. Louis Federal Reserve about the unsettling increase in student loan debt. This is particularly an important topic for those in the Project Firefly network, especially those in the United States.

 

Current estimates point to the fact that we have crossed the $1 trillion mark in outstanding student loan debt. In my opinion these figures may be overstated slightly due to fraud, but US government subsidies in interest paid on these loans actually underestimate the true costs in the medium to long term. We must remember also that unlike other debts, bankruptcy law in the United States makes clear that by declaring personal bankruptcy one is not free from those debt burdens.

 

Although the magnitude of these $1 trillion in liabilities are not yet felt by markets, they are unlikely to be 'felt' in the traditional market shock manner. Instead, this sort of debt acts as a slow and steady drain of this generations' purchasing power. Like many, I currently have teachers that are still paying down their student loan debts. Tuition prices have certainly grown since their time in university and prospects have diminished among those 'traditional' industries.

 

When posing the question to Dr. Bullard, I made clear to emphasize the complacency among students in regards to these loans. Undeclared juniors with over $50,000 in debt are not uncommon and this complacency is not only irresponsible, but fiscally dangerous.

 

I think we are all advocates for investing in ourselves and investing in our future, but we must not grow complacent and we must understand the growth of our respective majors. Nine of the top ten fastest growing jobs in the next decade are in the technology, programming and mathematic related fields. The growth of those respective majors in the university system have not kept up.

 

It may be naive to think that my question will make a difference. If anything, the question was rhetorical and not completely answered as central bankers remain careful in their public statements. Still, there is hope that in his discussions with universities and the FOMC committee, he will remember my question and may be more likely to highlight the risks. That is my true hope and small contribution to this and the next generation. Although monetary policy does not strictly deal with the issue of student loan debt, central banks are responsible for the economy and this generation will prove that those debts are important to recognize by policy makers.