The Economics of Education: The Societal Impact of Student Loans

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LINCOLN, Neb. (KOLN) - The average student graduating from a public university has nearly $27,000 in federal student loans, and it can take some more than 10 years to pay them off.

This information often begs the question — is it worth it?

The answer will likely vary depending on who is asked.

According to Dr. Eric Thompson, an Associate Professor of Economics and the Director of Bureau of Business Research at the University of Nebraska, while risky, student loans are vital to the education system.

“I think student loans have always been a big part of going to college,” Thompson said. “It has always been difficult to pay those loans back for most people, or challenging at least. What has changed, maybe, is the larger share of the population attending college, and some change in the mix of schools that people attend.”

From an economic standpoint, Thompson does not buy into the notion there is a “student loan crises” or an issue that will dramatically damage the economy. Although, he mentioned the importance “encouraging people not to take on too much debt.”

But from a broad perspective, Thompson explained that the more students borrow, the more beneficial it could be.

“I would say higher education is an investment, and all investments include an element of risk to them,” he said. “The fact that more people are going to school, and therefore more people are taking out loans, is arguably a positive thing for the economy because it suggests an increase in investment. In this case investment in themselves.”

Justin Chase Brown, the Director of Scholarships and Financial Aid at UNL, agrees, adding the tagline for the financial aid office is “Invest in Yourself".

“We do feel like college, higher education, financial aid, even student loans are investing in yourself,” Chase Brown said. “The research is very clear. Society and the public (benefits) from having a more educated citizenry, and it helps with jobs and economic growth.”

A natural follow to this ideology is asking what happens when that investment fails, and the payer defaults on those loans?

According to Thompson, that doesn’t change whether student loans are beneficial to the economy.

“If someone starts a business and it fails, I don’t think it was bad for the economy that they took that chance and started a business,” he explained. “So I think it is similar in the case of student loans. If someone takes loans, seeks a higher education, and for whatever reason it doesn’t work out, that doesn’t mean that the investment was a bad idea for the economy.”

In addition, student loans, and other forms of financial aid, can play a crucial role in getting a student to college, who otherwise may have never had the opportunity.

“Student loans are critical because we want students from a family who doesn’t have the resources to pay, we want them to have the opportunity to go to college too,” Thompson said. “Student loans and grants play a critical role there.”

However, no matter the financial situation or the amount of risk a student is willing to take, Les Monroe, the Director of College Planning at EducationQuest, said it is all about being wise with the amount of money borrowed.

“It is really a matter of understanding your budget,” Monroe said. “What do you need, why do you need it and where might that money come from, using student loans as a last resort.”