WSJ Ignores Facts To Blame Government For Student Loan Debt


A Wall Street Journal editorial blamed the federal government for an increase in student loan debt, ignoring higher levels of college enrollment and the effects of the economic downturn.

The Journal attributed an increase in student loan debt since 2008 to the "federal student-loan explosion" following the passage of the Affordable Care Act in 2010, which replaced government subsidies to private lenders with direct loans to students from the Department of Education. The Journal cited Federal Reserve Bank of New York data to claim the high levels of debt prove this new system has created "systemic risk":

The federal student-loan explosion means that this is the one giant exception to the needed consumer deleveraging that has occurred since the financial crisis. Americans have reduced their borrowing in most consumer markets. But U.S. student-loan debt increased 11% last year to $966 billion and has skyrocketed 51% since 2008, according to the New York Fed report. According to the Wall Street Journal, 43% of 25-year-olds had student debt in the fourth quarter of 2012, up from about 33% in the same period of 2008.

Talk about creating systemic risk.

But the Federal Reserve Bank of New York data that the Journal cites reveals that total student loan debt has steadily increased since 2005, years before the passage of the Affordable Care Act. The Federal Reserve attributed this upward trend in student loan debt to increased college enrollments and higher tuition rates.

Federal Reserve Bank of New York Total Student Loan Debt

The Journal also ignored how the economic recession affected current debt rates. A Center for American Progress (CAP) report found the recession to be "an important factor" in the growth of student lending:

The increasing cost of college has been a major reason for the growth of student lending, but the global economic recession of 2008 was also an important factor. Many households saw one or both parents lose their jobs, and many who still had jobs saw their wages cut, especially those with incomes of $30,000 or less who could least afford it. The result of these hardships was a decrease in savings by parents for their kids' college and more reliance on student loans by the students and the parents.

CAP also found that the financial crisis led to "a dramatic rise in college enrollment," resulting in more students borrowing to pay for school.

Furthermore, The New York Times Economix blog noted that unlike other forms of debt, which were forgiven when borrowers became bankrupt as a result of the financial crisis, "student loan debt cannot be discharged in bankruptcy." The Washington Post reported that this has made it harder for older generations, including senior citizens, to pay off their own student loans debts or support younger students, particularly as the recession limited the number of well-paying jobs.

Posted In
Economy, Education, College Financial Aid
The Wall Street Journal
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