A college degree is no longer a tool; it’s a luxury available to the rich

About 45 million people in the US are being crushed under the weight of federal student loans. A third of this number are millennials in the age group from 25 to 35 years.

Outstanding Federal student loans are now perched at a gasp-worthy $1.5 trillion, the highest level ever. They now aggregate 8% of the US national income, according to the FT.

Far from being the means to a better life, a student loan-funded degree has turned out to be a back-breaking burden for too many.

The implications of this debt are far-reaching. Students have to take up multiple jobs in their working life. Unable to afford homes, many need to live with their parents. The low disposable incomes crimp demand for new homes and pressures consumer spending.

Setting up a small business, a dream for many graduates remains just that – without capital, a dream.

The less prosperous take much longer to pay off their debts, and as a result, are unable to build capital for educating their children. This phenomenon accentuates income disparity.

These factors also impinge on the American economy. Consumer demand, new homes and small businesses are all essential to fuel economic growth.

Life priorities take a toll

A survey by personal finance company SoFi of over 1,000 Americans aged from 22 to 35 showed that millennials valued paying off student loans even more than buying a house or starting a family.

While 35% of millennials thought their topmost priority was to pay off the school debt, 25% felt buying a house ranked higher. However, only 17% gave top billing to saving for retirement, 15% to start a family, and 4% for starting to invest.

Why are US student loans so high?

The main reason is the spiraling cost of US education. A reduction in federal and state subsidies over the years has led colleges to pass on the deficit to students through higher tuition fees. The state funding declined every time a recession hit; unfortunately, it was not raised back up in better times.

At a rough estimate, tuition costs for a four-year bachelor’s degree can now be as high as $200,000. Even after help from parents, according to an HSBC study, the average shortfall for a US student is $82,100.

Why it is so difficult to pay back these loans

One reason is that incomes have stagnated over the past decade after the financial crisis. That’s a double whammy for the average student stepping into working life. The size of the loan taken for the degree has ballooned, but the income required to service that loan has not kept pace or may have even contracted.

Are there any solutions?

President Trump wants shorter degrees.

However, Democratic presidential candidates Elizabeth Warren and Bernie Sanders want to cancel student debt and also…tax the rich.

Probably, the US needs to get back to subsidizing education like its counterparts across the Atlantic.

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