Recently, billionaire investor Mark Cuban remarked that the best way to save the US economy lay in tackling the $1 trillion student debt crisis. At Inc.’s GrowCo conference, he mentioned that the increasing burden of student loans was having a negative effect on the purchasing powers of college graduates, which in turn, was hindering the economy.
Cuban suggested that in the past, college graduates would use the same money that today’s college students used for repaying their loans, for moving out of the house and making various purchases, which helped companies grow.
When asked for a suggestion to tackle the ever-burgeoning levels of student loan debt, Cuban suggested that placing a limit on the amount of loans each student receives each year. He said that by limiting the allotted amount of loans that lenders give each student to no more than $10,000, the student loan debt crisis could come under control.
Placing a limit on the amount of loans given to students would force universities to do a rethink. Therefore, instead of hiking costs and tuition expenses as they currently do, they would curb their expenses and lower tuition costs.
In his opinion, Cuban mentioned that rising tuition costs hardly helped the economy as much as enhancing the purchasing power of students did. To illustrate his point, he mentioned that the college might just use the extra cash obtained from rising tuition costs to finance a better fitness center on the campus.
However, federal student loans already have an annual lending limit. According to the information given on the US Department of Education:
- The Federal Perkins Loan has an annual lending limit for up to $5,500 for undergraduate students; for graduates and professional students, this goes up to $8,000
- The annual lending limit for Direct Subsidized Loans ranges from $3,500 to $5,500 based on the grade level
- Moreover, for dependent students, the annual loan limit for first-year, second-year and third-year and above students is $5,500, $6,500 and $7,500 respectively
Despite the limit currently in place, the student loan debt crisis continues to increase. Therefore, the area that probably needs additional focus is the rising cost of college tuition.
Consider the following statistics published by the US Department of Education:
- In 1981-82, the average total tuition, fees, room and board rates charged for full-time undergraduate students in degree-granting institutions was $3,489
- Adjusting the dollar value for inflation based on the prevailing inflation rate in 2011-12, the fees charged stood at $8,438
- In 2011-12, the corresponding figure was $19,339
In her article on the rising costs of college tuition, Danielle Kurtzleben reported that:
- The price index for college tuition rose by nearly 80 percent in the period from August 2003 to August 2013
- This increase was twice as fast as the increase in costs for medical care as well as the overall consumer price index for the same period
- Tuition costs grew faster than household incomes, showing a consistent increase from 2003 to 2012; in contrast, the median household income annual change rose marginally for just three years in the same span of time
- In addition to the rising tuition fees, college students have also been hit by the skyrocketing price growth in the costs of textbooks, which have matched the pace of growth in tuition fees
In her column, Liz Weston cites Mark Zandi, the chief economist of Moody’s Analytics, as mentioning that while student loan debt was affecting the homeownership aspirations of college students, it was still just marginal.
Therefore, it appears that instead of placing a cap on the annual loan amount given to college students, addressing the rising cost of college tuitions would be a more effective way for bringing the student loan debt crisis under control.