Resolving Long-Term Effects of the Student Debt Crisis

Our nation's student debt is currently sitting at $1.3 trillion. It's a staggering number, but what's more troubling is what that number represents.

Millennials are increasingly graduating from college with degrees that aren't helping them get jobs in the workforce. One out of every two college graduates is working a job right now that doesn't require a college degree.

These degrees continue to cost more, but graduates aren't getting jobs that match the pay they should receive. Although student loans may seem like a small percentage of consumer debt, when you start looking at it from a cashflow perspective, the massive ripple effect is hard to ignore.

Millennials and Gen Xers aren't buying homes as quickly as past generations, and credit scores are generally lower. The major purchases that drive this economy are being pushed back and foregone altogether, creating a systemic issue society hasn't wrapped its head around yet.

So why is this happening, and what do we do about it?

The Inequality of Degrees

An underlying factor of the student debt crisis is the difference in earning power between degrees. An engineer from University of California, Berkeley is positioned to earn a higher salary than a high school graduate, but the same isn't true for an equivalent arts degree from Morehead State University.

The cost to attend each school doesn't reflect future earning potential, however, as tuition and fees at four-year public universities across the board have nearly doubled over the past 15 years, while private nonprofit schools increased 45 percent.

While it's true that 11 of the 15 fastest-growing jobs require a degree, they require very specific degrees out of the hundreds available that won’t lead to the same possibilities.

We need to match the demand of the labor markets to the supply of higher education. Fixed interest rates on student loans create a serious mismatch. We have an oversupply of communication degrees and an undersupply of in-demand degrees like computer programming.

If you floated the student loan interest rate to discourage certain degrees or even institutions without a good return on investment — and lowered interest rates on degrees and institutions with a higher demand in the labor market — the economy could right itself. Instead, we attempt to force everyone into a house and higher education, regardless of whether it's necessary for his or her life path.

Holding Back the Economic Tide

This isn't a new phenomenon, and the long-term effects have yet to be felt. Past generations of families saved toward their children's education, but with many parents still paying off their own student debt, this may no longer be possible.

The payback period for student loans is going to be far longer than many anticipated. All of that ties into driving down overall consumer spending, credit scores, and asset ownership — all of which are major economic drivers.

Student loan debt is driving us into a recession, barely seven years into the weakest recovery since 1949. The bottom third of our economy of consumers is at a negative cash flow. And there's a good chance we'll see unemployment spikes as underqualified workers lose their jobs or unprepared businesses shut their doors.

It's not too late to attempt to turn the economy back around. There are three steps we can take now to prevent a catastrophic economic meltdown:

1. Float the interest rate. We have to start pricing institutions and the degrees they issue based on the kind of income their graduates receive. It doesn't make sense for someone to pay the same price for a degree that will net him or her less money in the long run.

These students are working just as hard in college only to get paid less than they would with just a high school diploma. Decreasing the number of institutions handing out essentially worthless degrees will help match the supply and demand in the labor markets.

2. Rethink college degrees. We need to get rid of career and education arrogance. Society is like an engine that takes many different parts to work together. A lawyer is no better than a mechanic just because he stayed in school longer. Each part keeps the engine running, regardless of how fancy it is. Pushing everyone toward higher education is a mistake that’s simply unsustainable.

3. Restructure the education model. Businesses and economies move much more quickly than our current education model can handle. Does anything you learned from your four-year degree even make sense in today's climate?

The education system isn't keeping up with the speed of technology and changing pace of the world. We have to learn to rapidly train skills in boot camps faster than a four-year institution is capable.

The student debt crisis may not seem like a big deal to you, but default rates are higher than with any other type of debt, and it's effecting the entire economy. A few simple changes to how we evaluate and value higher education won't do everything, but it's a step in the right direction.

Not all college degrees are created equal, so if you’re taking out loans to study art history instead of computer programming, you need to understand that you’re not going to out-earn your peers without a degree. Sometimes, a hobby is just a hobby, and hard work in the right direction creates an easier path than hard work down the wrong road.