America’s Student Debt Crisis
Student debt crisis is one that is escalating fast in the USA. Today it is amongst the
fastest rising forms of debt in the USA (Zhang et al., 2020). The numbers state an accumulated
debt of over a whopping USD1.7 trillion and over 40 million borrowers (Hanson, 2024). In this
article, I aim to discusses the possible threats caused by the rising levels of student debt to the
USA’s economy and the borrowers. During COVID-19 a forbearance on student loan payments,
exerted an increase in consumer spending (Lourie et al., 2023) and therefore it shows that student
debt causes people to have less disposable income. It affects their consumer spending and other
life decisions as they may delay marriage or starting a family as well which leads to a delay in
home ownership and other things such as car ownership (Cornelius & Frank, 2015).
Furthermore, the amount of student debt has risen exponentially, and its continuous rise could
lead to a contraction in credit supply (Sommer, 2020). It is evident that there are growing
concerns with the amount of student debt that has been accumulated, and the Biden
administration are putting in their efforts to find a possible solution. There, have been
suggestions of universal cancellation, capped cancellation, and Income Driven Repayment
methods (Catherine & Yannelis, 2022). There is an urgency to find a solution before this
situation has left its mark on the nation’s economy.
Annotated Biblography
Catherine, S., & Yannelis, C. (2022, November 24). The distributional effects of student loan
forgiveness. Login.aus.idm.oclc.org. https://www-sciencedirectcom.aus.idm.oclc.org/science/article/pii/S0304405X22002239#sec0021
This source is one that helps in identifying the effects of three possible solutions that have been
proposed to student loan debt, through this article I will be able to conclude on a solution. It
discusses each of their outcomes and how they affect those that are in debt. It is a credible article
written by authors from Wharton School and Booth Business school, which are parts of the
esteemed University of Pennsylvania and University of Chicago.
Cornelius, L. M., & Frank, S. A. (2015). Perspectives on Student Loan Debt Levels: Student Loan Debt
Levels and Their Implications for Borrowers, Society, and the Economy. Educational
Considerations, 42(2). https://doi.org/10.4148/0146-9282.1052
This article shares details on how the growing burden of student debt will effect the nation’s economy
and the individuals that have borrowed, making it a key resource in making my points about the
macro-economic effects of the rising debt levels. It is a peer reviewed article from the University
of North Florida.
Lourie, B., Nekrasov, A., & Yoo, I. S. (2023, July 30). The impact of debt forbearance on borrowers’
financial behavior and labor outcomes: Evidence from student loans. Login.aus.idm.oclc.org.
https://www-sciencedirectcom.aus.idm.oclc.org/science/article/pii/S1544612323006372#sec0006
The authors of this article come from esteemed instituitons, discussing the impact of how the pause in
student debt during covid helped stimulate the economy, and I am going to try to communicate
how that will be a similar to the cancellation of student loans in helping increase consumer
spending.
Serra, G. P. (2022). Household debt, student loan forgiveness, and human capital investment: a neoKaleckian approach. Journal of Post Keynesian Economics, 1–34.
https://doi.org/10.1080/01603477.2022.2134035
An article in which the author is suggesting that student loan cancellation only has short term benefits
which I will use to position and phrase my counter claims.
Sommer, K. (2020). Student debt overhang: imprint on homeownership and the economy. Business
Economics, 55(3), 134–137. https://doi.org/10.1057/s11369-020-00181-5
This article hints to a potential link between the student debt levels and the falling home ownership rates
which will enable me to make the point about how it is becoming more difficult to afford home
ownership due to student loans.
Zhan, M. (2020). Student Loan Debt and Financial Hardship Among Young Adults. Aus.idm.oclc.org.
http://aus.idm.oclc.org/login?url=https://www.proquest.com/scholarly-journals/student-loandebt-financial-hardship-among-young/docview/2867616530/se-2?accountid=16946
A peer reviewed, credible source highlighting the financial strains that are put on young adults with the
large amounts of borrowed sums. Through this article I will highlight the struggles faced by
borrowers.
Zhang, Y., Wilcox, R. T., & Cheema, A. (2020). The Effect of Student Loan Debt on Spending: The Role
of Repayment Format. Login.aus.idm.oclc.org. https://web-p-ebscohostcom.aus.idm.oclc.org/ehost/pdfviewer/pdfviewer?vid=0&sid=39f148a8-727c-485d-8cde9bd234510a8c%40redis
This article discusses the student debt levels and spending patterns. It is complentary to one of my
supporting claims which is that student debt lowers disposable income which means less money
flowing through the economy. It is an article published by the American Marketing Association
in 2020.
Formal Outline
Thesis: Student debt is an escalating crisis in the U.S, as the fasters growing form of debt, it is
posing a threat to the nation’s economy and those indebted. Current factors inform us of lower
consumer spending, delayed home ownership and financial vulnerability of those with student
debt. Overtime, these factors will become more severe indicating a need for an urgent reform.
I.
Introduction
A. Student debt is the fastest growing type of debt in the USA.
B. Over USD1.73t in cumulative student debt is owed and over 40m people in the US have
student loans.
C. It is hindering the US economy from a macroeconomic perspective.
II.
Supporting Claims:
A. Dilute disposable income, lowering consumer spending.
B. Delays major life purchases such as home ownership or car ownership.
C. Creating a contraction of credit supply.
D. Those with student debt are worth significantly less than those who do not have any
student loans.
E. Default rates double between 2000 and 2011.
III.
Counter Claim:
A. Till date, data suggests a small delay in home ownership.
B. Macroeconomic effects seem to be manageable, and the economy is not affected in any
major way.
IV.
Rebuttal:
A. Compounding will make the small delay in home ownership to a large one over the years.
B. Student debt has risen exponentially over the last 20 years. We should be proactive not
reactive (Like we were in the 2008 Mortgage Crisis)
C. The Biden Administration understands the threat the economy faces, the government
faces and the students face with the rise of student debt, which is why they are working
on policies to cancel student debt.
V.
Conclusion:
A. There have been suggestions for income driven repayment programs, capped debt
cancellation and universal cancellation. I believe universal cancellation is the way to go,
because even though it is more beneficial to those with a higher student loan (usually
higher earners) it still resolves the issue for everyone else too.
References
Catherine, S., & Yannelis, C. (2022, November 24). The distributional effects of student loan
forgiveness. Login.aus.idm.oclc.org. https://www-sciencedirectcom.aus.idm.oclc.org/science/article/pii/S0304405X22002239#sec0021
Cornelius, L. M., & Frank, S. A. (2015). Perspectives on Student Loan Debt Levels: Student Loan Debt
Levels and Their Implications for Borrowers, Society, and the Economy. Educational
Considerations, 42(2). https://doi.org/10.4148/0146-9282.1052
Hanson, M. (2023, August 20). Student Loan Debt Statistics. Education Data Initiative.
https://educationdata.org/student-loan-debt-statistics
Lourie, B., Nekrasov, A., & Yoo, I. S. (2023, July 30). The impact of debt forbearance on borrowers’
financial behavior and labor outcomes: Evidence from student loans. Login.aus.idm.oclc.org.
https://www-sciencedirectcom.aus.idm.oclc.org/science/article/pii/S1544612323006372#sec0006
Serra, G. P. (2022). Household debt, student loan forgiveness, and human capital investment: a neoKaleckian approach. Journal of Post Keynesian Economics, 1–34.
https://doi.org/10.1080/01603477.2022.2134035
Sommer, K. (2020). Student debt overhang: imprint on homeownership and the economy. Business
Economics, 55(3), 134–137. https://doi.org/10.1057/s11369-020-00181-5
Zhan, M. (2020). Student Loan Debt and Financial Hardship Among Young Adults. Aus.idm.oclc.org.
http://aus.idm.oclc.org/login?url=https://www.proquest.com/scholarly-journals/student-loandebt-financial-hardship-among-young/docview/2867616530/se-2?accountid=16946
Zhang, Y., Wilcox, R. T., & Cheema, A. (2020). The Effect of Student Loan Debt on Spending: The Role
of Repayment Format. Login.aus.idm.oclc.org. https://web-p-ebscohostcom.aus.idm.oclc.org/ehost/pdfviewer/pdfviewer?vid=0&sid=39f148a8-727c-485d-8cde9bd234510a8c%40redis