Professor Kelber gives Honors Presentation on student debt
February 8, 2017
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The second annual honors presentation was held on Feb. 1. and was given by Professor Jennifer W. Kelber, an assistant professor in the Department of Economics and Business. Titled The Financial Behavior of Millennials and Their Exploding Student Loan Debt: Is a Crisis Ahead, it covered the growing student loan debt incurred by millennials and if another Recession is on the horizon.
The student debt of millennials is growing. Behind mortgage debt, student loan debt is the second largest source of debt among households. About 42 million people in the United States hold student debt and contribute to 1.4 trillion dollars to the national deficit. Of those who borrowed in the class of 2016, which was around seven out of ten students, their average debt equaled 37,172 dollars.
This debt has caused concern for many economists who worry that a bubble is forming and just waiting to pop and cause the next Recession. Kelber said the chances of student debt causing the next Recession is quite slim, reasons being: student debt only makes up 10% of the US deficit, student debts have been securitized, it is a small systemic market, and the loans are guaranteed by the Federal Government.
Despite the reassurance by Professor Kelber, she did bring up many similarities between the student debt bubble and the Great Recession that rocked the economy in 2008. Using Minsky’s Financial Instability Hypothesis, which states that periods of prosperity in an economy will naturally move from stable to instable, she showed remarkable similarities between now and 2008.
Investment and consumption spending increasing, and easy credit can lead to debt accumulation. As the debt bubble grows, is it sure to pop; causing sellers to flood the market in a panic which leads to crash. Although, even if the bubble of student debt were to pop, it is not big enough to cause a full fledge market crash and result in another economic collapse like in 2008.
The millennial generation faces the question of whether it is more fiscally beneficial to get a college degree or to enter straight into the workforce. Kelber explained why it is more fiscally responsible for a student to go to college. The returns of increase lifetime earnings for a Bachelor’s Degree’s is 75%, whereas the costs associated with a Bachelor’s degree are only increasing at 50%; leaving a 25% benefit to earning a Bachelor’s Degree compared to not earning one.
Unfortunately, these are only general statistics, and not guaranteed for every bachelor’s degree. College degrees allow for more advanced jobs which have a higher pay. Studies show that earning premiums for a college degree has almost doubled in the past 30 years. The student debt that comes with the degrees is the problem that fazes most people, as defaulting on loans can ruin people’s lives.
Kelber also touched on the loan aspects of student debt and cleared up many misconceptions about borrowing that students fall prey too. She said that students tend not to know how much to borrow. When college students borrow, they tend to borrow too much or too little. Statistics show that those who borrow more tend not to default the most because many who take out the highest loans are Graduate Students who can generally pay back the loans.
Defaulting on a loan tends to happen to students who drop out of two or four year colleges before finishing degrees. They have taken out loans that must be paid back but have no added pay from a college degree. Kelber also discussed how higher education institutions have been under the stress of inflation, causing a hike in tuition.
This presentation is part of the annual honors program that serves to help honor students get a greater depth of education. This is the second opportunity that honor students received to apply the knowledge that they learned to real world situations.