MADISON, Wis. — A new report released by the Federal Reserve Bank of New York paints a grim picture of the growing trillion dollar student loan debt crisis and confirms the findings of a One Wisconsin Institute study that found student loan debt has a severe, negative impact on Wisconsin’s economy, especially new car purchases and rates of home ownership.
One Wisconsin Institute Executive Director Scot Ross commented, “The latest study from the Federal Reserve Bank of New York, again, dramatically demonstrates the trillion dollar student loan debt is not just a disaster for student and their families, but a serious threat to our national economy.”
Among the findings of the New York Federal Reserve Bank report was “growth in student loan balances and delinquencies was accompanied by a sharp reduction in mortgage and auto loan borrowing.” In addition, the research revealed student loan debt is the second largest consumer liability, exceeded only by mortgage debt, the number of borrowers and borrowers’ debt has risen 70% since 2004 and loan delinquency rates exceed 30%.
Original research conducted by the One Wisconsin Institute found student loan debt has a dramatic, negative effect not just on students and families but also the state economy. Individuals with bachelor degrees with student loan debt were making average monthly payments of $350 on loans with an average term of nearly 19 years. For those with advanced degrees, the situation was worse, with monthly payments averaging $448 on loans with an average term of 22 years. Over $200 million in annual new car sales are lost as a direct result of student loan debt and households with student loan debt are significantly more likely to rent rather than own their home. In fact, the survey found over 85% of renters reporting solid middle class incomes between $50,000 and $75,000 were making student loan payments.
Gov. Walker’s 2011-13 budget imposed a $107 million tuition hike on University of Wisconsin System students and froze student financial aid at 2010 levels. In his recently announced 2013-15 budget plan, Gov. Walker again freezes financial aid at 2010 levels while giving the UW System unlimited tuition increase authority. In addition, the impending federal sequester endangers funding for financial aid for an estimated 280,000 students.
Ross concluded, “Inaction on the trillion dollar student loan debt crisis by Gov. Walker and obstructionists in Congress is not only puts the American Dream further out of reach for graduates and students alike but the demonstrable impact of the crisis on the state and national economy means their intransigence costs us all.”