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Student Loan Debt And Its Effects On The Economy

Over the last few years, the US has seen a great increase in the rate of student loans drawn and the subsequent amount of debt incurred.

Why Is There Debt Being Incurred from Student Loans?

Theoretically, one would presume that the system of student loans would be a simple one – students draw a loan, they fund their college degree, manage to get a job and they pay of the said loan.

The problem, however, is the vicious cycle the economy has fallen into. A combination of market saturation and lack of available opportunities result in accrued debt and loans that can’t be paid off.

Another reason student debt is on the rise is the nature of the demographic most likely to draw out such a loan. Wealthy students that would have the financial security of paying back such a loan are not likely to draw it in the first place. Exceptional students that are likely to land good jobs are similarly unlikely to need loans as they would rely on financial aid and scholarships. Lower to middle income households rely most heavily on student loans to fund their college education and hence struggle to pay it back without the support of steady-income job.

The Effect of Student Loans on The Economy

The question that arises is what the effect of these unpaid debts on the economy actually is. Many would argue that student loans are an inflated number taken to pay off the disproportionately inflated amount of money colleges’ demand. It is not a cost arising from assets or possessions but rather the cost associated largely with an intangible service. As a result, there is no direct loss the economy might suffer in that sense.

Others, however, would say that since personal loans and private debt have a very certain effect on the economy student loans are likely to be no different. The pressure of a personal debt slows down the spending and investing of a household, two things that are essential to keep the economy going.

Studies have proven that the debt arising from the mortgage crisis in 2007-2008 still has an active effect on the economy. There is no evidence to indicate that the pressure from rising student loans and their resulting debt will not be felt in a similar way. Ultimately, however, there is nothing else to do but wait and see. For more info please visit at http://www.vivo.se.

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