September 26, 2012

New Research Shows Trillion Dollar Student Loan Debt a Drag on Wisconsin Economy

One Wisconsin Institute Research Reveals Hundreds of Millions in Potential In-State Economic Activity Diverted to Student Loan Debt Repayment

MADISON, Wis. — As student loan debt tops one trillion dollars nationally, surpassing credit card debt, federal officials are pointing to the debt crisis as a drag on economic recovery efforts. Original research from One Wisconsin Institute released today confirms the detrimental economic impact of student loan debt, finding it reduces new car purchasing in Wisconsin by over $200 million annually and that middle class households with student loan debt are overwhelmingly more likely to rent than own a home.

Scot Ross, Executive Director of One Wisconsin Institute, commented, “The trillion dollar student loan debt is not just a crisis for students. It is literally standing between college graduates and their share of the American dream and a more robust economic recovery both nationally and, as shown by our research, in Wisconsin.”

According to One Wisconsin Institute’s analysis of a detailed financial survey of nearly 2,700 Wisconsin residents across income and age levels, over one-third of persons with bachelors or advanced degrees were making student loan payments.

The Institute’s research further revealed:

  • Individuals with bachelors degrees reported making an average monthly student loan payments of $350 and those with graduate or professional degrees made an average payment of $448;
  • The length of student loan debt was nearly 19 years for persons with bachelors degrees and over 22 years for those with graduate or professional degrees;
  • An increasing reliance on private student loans versus government loans and an increasing number of individuals consolidating their loans, therefore extending the repayment period and total amount paid, post-1996 Student Loan Marketing Association Reorganization Act;
  • Individuals paying on a student loan are more than twice as likely to purchase a used versus new automobile;
  • Annual aggregate new vehicle spending may be reduced in Wisconsin by up to $201.8 million;
  • A strong correlation between student loan debt and renting with 85.6% of renters with household incomes between $50,000 and $75,000 currently paying on a student loan.

Increasingly students and their families have been unable to absorb the cost of college in their budgets as the average tuition has increased 600% since 1980, far outpacing income and wage growth, creating an increased reliance on student loans.

As more students were forced to take out loans, federal laws were changed to remove bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection practice requirements and even state usury laws while unprecedented powers of collection were granted to the lending industry. In addition, federal legislation was passed to encourage student loan debt consolidations, increasing the length of indebtedness and increasing the total amount paid to retire the loan.

“Laws were changed to tilt the system against borrowers, and rising tuition continues to force more and more people into the vicious cycle of student loan debt. College used to be the path to the middle class and a prosperous future. But our research shows we are in danger of reducing middle class college graduates to indentured servitude to lenders, renting instead of owning a home and deferring new vehicle purchases, all to the detriment of Wisconsin’s economy,” said Ross.

Ross noted that some steps have been taken to undo the damage of law changes adopted in the mid and late 1990s, including making the government the originator of federal loans, capping loan payments at a fixed percentage of household income and limiting the term of loans.

He concluded, “Millions of dollars are being taken from Wisconsin residents and businesses because of student loan debt. If we want a stronger economy today and a brighter future for our children, we can no longer afford to ignore this crisis and the policies that helped create it.”

The Institute’s complete findings on student loan debt are available at http://bit.ly/1qYhf4h.

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One Wisconsin Institute is a non-partisan, progressive research and education organization dedicated to a Wisconsin with equal economic opportunity for all.

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