Washington Update

Brookings Institution Examines Rise in Student Loan Debt

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Last year, U.S. student loan balances reached $1.2 trillion, according to a new study by the Brookings Institution. The figure exceeds the value of any other debt category except mortgages. The speed at which student indebtedness has increased has accelerated in recent years as well, with student loan debt growing more than three-fold between 2004 and 2012, according to the report. During the same time period, both the number of borrowers and the average outstanding balance on student loans jumped 70%.

The 10-page report details several reasons for rising student loan debt, among them a 27% increase in college enrollments between 2002 and 2011, and a 41% increase in the cost of going to a public university between 2002 and 2012.

The report also notes a cyclical effect to the debt problem in which increased borrowing in response to higher tuition prices may also spur further tuition price hikes. Although federal funding can lower education costs for students, evidence suggests that some amount of federal subsidies to higher education is “passed forward” to schools in the form of either higher tuition or lower school-sponsored student aid. 

Brookings researchers report that the impact of student loan debt affects things as varied as choice of major, career choice and home ownership. They cite a 2011 study, which found that each $10,000 in student loan debt reduces by five to six percentage points the chances that a graduate will find work in the government, non-profit or education sectors.

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