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Education researcher Erin Dunlop Velez crunched data that was recently released by the Department of Education, and found that only half of students who went to college in 1995-6 had paid off their loans within 20 years. That creates a burden making it hard to start a family, buy a home or open a business which in turn creates a long-term drag on growth.
What’s more, student lending has almost certainly contributed to the rise in college tuition, which has outpaced overall inflation by a lot. When the government lends students money, or encourages private lenders to do the same, it increases demand for college, pushing up the price. If the loans are subsidized, that represents a transfer of money from the taxpayer to the university. If the easy availability of loans nudges inexperienced 18-year-olds to spend more money on college than they otherwise would, the loans represent a transfer from the borrower to the university. Either way, the money isn’t flowing into the pockets of future workers, but to university coffers, where some of it gets used to offset reductions in state funding for higher education, and some gets spent on salaries for an ever-expanding army of administrators.
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