The good news about student loans
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For the first time since the early 1980s, tuition inflation is lower than the rate at which consumer prices are rising, according to a new research paper from S&P Global Ratings.
The big picture: Baumol's cost disease, which says that tuition fees are always going to rise faster than inflation, might not be an iron law after all. It's been a decade since Congress increased the amount that undergraduates could borrow from the government, which is effectively constraining tuition increases.
Is there a crisis in student loans? Maybe not.
- Student debt burdens can be extremely unpleasant for individual borrowers, but they don't seem to be impeding the progress of the economy more broadly. The Americans with the highest student-debt burdens also tend to be the Americans most able to repay those loans: doctors, lawyers, and other professionals.
- The highest student-loan default rates are found among the students with the lowest student debt burden: borrowers who owe the government less than $5,000.
- The median ratio of educational debt to income for households under 35 fell 5 percentage points between 2013 and 2016. The situation isn't great, but it's getting better, not worse.
Yes, but: The stock of student debt is already dangerously high, at $1.5 trillion and rising. It has grown by 157% in the past 11 years, even as mortgage and credit-card debts outstanding have remained largely flat.
- More than 10% of borrowers are more than 90 days behind on their student loans.
The bottom line: "Stronger income growth and slower cost increases are working to bend the leverage trend," as S&P puts it. "This trend of rising student debt isn't necessarily a bad thing. Education is an investment in human capital, and if the skills acquired are valued by employers, then going to college carries a positive net present value — even with debt financing."
