For the last several years, the media and political parties have been focused on our budget deficits and the national debt and how they will negatively affect our nation years down the road. The vast majority of this debt has been accruing because of the entitlement programs, Social Security, Medicare, and Medicaid. However, the decision to lower taxes during the Bush administration while we were conducting two wars, and the passage of Medicare Part D to cover the costs of drugs, have also contributed to the problem.
In addition, public debt has been soaring on municipal, county, and state levels, with workers’ pensions underfunded in many jurisdictions, in some cases resulting in huge deficits. This is one of the factors that led to Detroit’s bankruptcy and has placed other cities in precarious positions.
But it’s not only public indebtedness that is a problem for our country. Private debt has also continued to grow and can be expected to be a major drag on our economy at some point in the future. The three major drivers of private debt are student loans, credit cards, and mortgages, with car loans also contributing. With the cost of education skyrocketing, student loans have been a particular problem and will continue to be so in the future. It appears that the people most likely to default on student loans are those who have not completed their educational programs and thus are unable to reap the benefits of increased incomes associated with a degree.
Though the New York Fed reported a default rate of 11.5 percent for student loans in the last quarter, this probably considerably understates the delinquency rate. This is because about half of these loans do not currently require repayment as the students remains in school or in work that defers repayment. Credit card default rates last quarter were 9.5 percent.
Too much public and private debt cause problems for the economy and both make economic growth more difficult. Individuals or households with too much debt are less likely to spend money and consumers are the major force behind our economy. And those who default on their debts are less able to get loans in the future to buy things or start businesses, or even get credit cards to use.
When municipalities and states are in the red, they lay off workers and provide fewer services to citizens. This includes teachers, policemen and firemen, which means that K-12 education suffers and safety is threatened. Most economists believe that federal debt is less of a pressing problem, as the budget deficits have actually been going down and the percentage of the national debt compared to the GDP is also less. Nevertheless, the entitlement programs will have to be brought under control at some point, hopefully through a combination of cuts and new revenue.
Student loan debt must be addressed through actions of the federal government and the institutions these students attend. Higher education is important for the future of the nation and students who pursue education should not be indefinitely burdened with debt. On the other hand, private institutions that have a poor record of graduating students and placing them in jobs should not be allowed to obtain money from the federal government for enrolling students who will not be able to pay back these loans.
All levels of American government as well as individual citizens and households are currently overextended and living beyond their means. All must begin the process of retrenchment in an orderly fashion, as cutting back too rapidly could significantly impact economic growth.
Resurrecting Democracy
www.robertlevinebooks.com
Political junkie, Vietnam vet, neurologist- three books on aging and dementia. Book on health care reform in 2009- Shock Therapy for the American Health Care System. Book on the need for a centrist third party- Resurrecting Democracy- A Citizen’s Call for a Centrist Third Party published in 2011. Aging Wisely, published in August 2014 by Rowman and Littlefield. Latest book- The Uninformed Voter published May 2020