engl112-----Annotated Bibliography #1----500 words

The economic impact of student loans

A good education is one of the hallmarks of a thriving country, children get fundamental knowledge all through their childhood, and when they are old enough, they move on to universities and colleges where they get to specialize and prepare themselves for their careers. Over the last two decades, the economic conditions in the United States of America have tended to favor job seekers who have gone through a college education. Increasingly, the path to the American dream lay though varsities (Avery and Turner). As increasing numbers of young people are choosing to further their education post high school, the costs of attending four-year colleges have soared; it is becoming increasingly impossible to attend these institutions without the help of student loans. At the end of 2015 Americans owed 1.2 trillion dollars in student debt, this significant amount has the potential to affect the American economy in subtle ways. The increase in college education leads to a corresponding increase in student loans this negatively affects the economy (Akers and Chingos).

Increasing numbers of economists and education stakeholders are alarmed at the rate in which the cumulative amount of student debt is growing in America. Most people in analyzing the situation, are prone to comparing the current generation of students with the generation of students in the 70' and 80,s, back then, it was possible to attend school and work part-time to afford education. The ability to go to college and not be saddled with debt afterwards affords one certain liberties, young people could afford to buy homes and have children (Brown, Haughwout and Scally). Most people observing current educational trends are worried that the increasing amounts student debt holds young people from participating in the activities of their parents. These activities include buying homes and building families. This generational change is evident throughout the United States of America where home ownership has fallen to the lowest amount in the last fifty years.

In the student loan debate, three prominent positions are most pertinent. The first argument is that student loans leave many people saddled with debt long after they have graduated from college; many students face the bleak future of spending their whole lives paying back student loans. The second pertinent argument is that the massive amounts of debt that many students leave college with make them unable to advance their lives adequately because of the bad credit rating that their student loans give them. Young people cannot afford to take out loans to start businesses, buy vehicles, or even purchase homes. While these activities were typical for the generation of students that graduated before the 90's, they are not possible for the current generation of students (Rothstein and Rouse). The third argument in the student loan debate is that the vast amounts of debt that students have hold them back from participating adequately in the economy.

In the United States of America, the average amount of student loan is $28000 per person. The average amount of student loans for recent graduates is $34000, for most current graduates this money takes a long time to repay (Shen and Ziderman). Most young graduates are coming to the realization that they will spend a significant portion of their adult life paying student loans. Ever since the 2008 subprime mortgage crisis, the salaries for entry-level jobs in the United States of America have stagnated, one cannot reasonably expect to repay quickly, their student loans.

Because, unlike their parent before them most young people have to adjust their lives to account for a large amount of student debt, the current generation of students and undergraduate degree holders are expected to marry, buy cars, and have children much later in life. A large amount of debt is holding many people back from fully living their lives as they always intended (Akers and Chingos). The realization that most of the life goals that one has always aspired to are unattainable due to student debt causes depression among many young people, it also negatively affects the American economy, as people do not have expendable income to spend on items.

Free cash flow marks a robust economy; people take loans to start businesses and in the process create new jobs, the influx of jobs provides people with income, which they store in banks and buy items. The banks, in turn, lend out this money to businesses thus completing the cycle. The breaking of this economic cycle can lead to grave consequences for an economy. The large amounts of student debt often leave many students with no money left to save after paying for the bills and the student loans; this is a shaky foundation on which to build one’s future, without savings many people are dangerously exposed to economic fluctuations (Rothstein and Rouse).

Because Americans owe such a large amount of money in student loans, this issue has moved beyond the scope of students. Everybody, from the government to the public sector needs to put their efforts together in coming up with an adequate solution to prevent the impending catastrophe. Seventeen percent of people sharing the $1.2 trillion debt burden are at serious risk of defaulting on their loans (Brown, Haughwout and Scally). Just like the inability of many people to repay lavish mortgages led to the 2008 financial crisis, the failure of a vast number of people to pay back their massive student loans may trigger a series of events that result in another recession; this cannot be allowed to happen. All the relevant stakeholders need to come up with a proper solution that ensures students can get a quality education without taking on massive amounts of debt.

Research on students and student debt has shown that three types of students face the largest amount of student debt and are at risk of defaulting. Graduate students form sixty-four percent of students with debts of over $50000 and above. One factor that contributes to the large amounts of student debt held by the graduate students is that they can borrow an unlimited sum of money from the federal government up to the cost of attendance. Even though graduate students holds the largest amounts of student debt, they are the group most likely to pay back their student loans because they have a higher likelihood of obtaining high paying jobs after graduation (Shen and Ziderman).

The second most at-risk student groups are those who graduate from for-profit colleges. It is significantly more expensive to obtain an education in for-profit colleges. Most people who graduate from these institutions have significantly higher amounts of debt, over 10% of students who graduate from for-profit institutes graduate with debt of over $50000. The third most at-risk student group is college dropouts, according to student debt statistics, 59% of people with little student debt are college dropouts, with debts not exceeding $10000. However, college dropouts are the groups of student most likely to default on their debt; this is because it is much harder for college dropouts to find a high paying job after school.

Research conducted by the wall street journal uncovered that the graduating class of 2015 graduated with the largest amount of student debt ever. The average student graduating in 2015 owed over $35000 in debt. From 1993, there is an increasing trend of students graduating with more debt. One solution to the challenge presented by student debt is government subsidies. President Barack Obama proposed a solution whereby government subsidies paid for free college education in government community colleges. The cost of subsidies can come from higher taxes on corporation and the one percent of earners in America (Brown, Haughwout, and Scally).

In the student debt debate, there are dissenting opinions that argue that the issue of student debt is not urgent, and there is no need to worry, this is a faulty argument. We cannot afford to shrug away the issue of student debt when 71% of students are graduating with debt; this problem will affect America in subtle but significant ways.

References Akers and Chingos. Is a Student Loan Crisis on the Horizon?. . Brown Center on Education Policy, Brookings Institution., 2014. Avery and Turner. "Student Loans: Do College Students Borrow Too Much—Or Not Enough?. ." The Journal of Economic Perspectives (2012): 165-192. Brown, et al. "Measuring student debt and its performance." Student loans and the dynamics of debt (2015): 37-52. Rothstein and Rouse. "Constrained after college: Student loans and early-career occupational choices." Journal of Public Economics (2011): 149-163. Shen and Ziderman. "Student loans repayment and recovery: international comparisons. ." Journal Higher Education (2009): 315-333.