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Education Debt - A Drag on the U.S. Economy
came and went this past May for the class of 2009, ushering them into the "real
world," a place to take their recent education, spread their wings and
fly.For many, these graduates
face the challenge of chasing their goals with the shackles of student loan
debt on their feet.
Student Debt on the Rise
education costs becoming more commonplace in today's environment, more students
are finding themselves with a higher amount of loan debt to cover the costs.In 2002, CNN reported that 64% of
students graduated with student debt with the average debt totaling $16,928,
double the 1992 amount.
This May, student
debt for bachelor degree recipients at 4-year public institutions was $17,700,
up 4% over the last 5-years, with student debt for graduates at private
institutions rising 5% to $22,375 per graduate.
A Drag on the Economy
Even before the
current economic downturn began, recent graduates were entering the work force
with more debt than ever.And yet,
these graduates had not even had a chance to think about buying their first
home and for some even their first automobile.The U.S. economy is greatly dependent upon consumer
spending, much of which is fueled by 20-somethings as they purchase their first
homes, furnishings, lawn equipment and autos.The purchasing power of recent graduates have been
significantly reduced by their student debt levels as they have entered the
work force.While it is difficult
to measure the direct impact resulting from the student debt drag on the U.S.
economy, we expect this drag to continue for the foreseeable future.The continued escalation in the
unemployment rate will serve to amplify this economic challenge and until the colleges
and universities in America take a more pro-active role in managing student
debt levels for their graduates, the U.S. may have a higher hill to climb to
remain competitive in the global economy.
universities are known for flexing their fundraising muscles, reflected in the
massive size of many university endowments.Endowment funds are raised with the intention of furthering
the universities goals of providing meaningful and effective higher education while
keeping the cost of higher education affordable for students. The recent
economic downturn and in particular the downturn in the financial markets have
taken a toll on university endowments.The recent trend of managing the investments held in education
endowments with a higher risk strategy, some similar to hedge funds, has exacerbated
this decrease.Even Harvard
University, the bell weather of university endowments, experienced an
overwhelming 22% decline in assets the first four months of their 2009 fiscal
Institutions are beginning to recognize
their responsibility to do something about rising student costs.
debt continues to escalate at break neck speeds, some institutions are finally
beginning to consider the seriousness of the negative long-term economic and
demographic results that emulate from the burden of these escalating student
loan balances.Some of America's
most well endowed universities have begun to collect tuition on a declining
scale based upon family income and ability to pay.Yale for example, trimmed the cost of tuition for families
in the $120,000 - $180,000 bracket nearly in half and cut tuition entirely for
families making under $60,000 dollars a year.Other universities have adopted similar financial aid
policies.This is a powerful and
bold move forward for colleges and universities as they begin to take a more
active role in reducing the burden of student debt that comes from relying on
paying for an education with student loans.
In today's world,
a college education is essential for youth and for America. But the one-two punch of the rising cost
of a diploma coupled with the impact of high unemployment is a drag on the U.S.