The Great Recession’s Contributions to the Student Loan Crisis
Trying to figure out the exact cause of a mass socioeconomic issue like the student loan crisis is tough. There are often numerous factors involved, making it nearly impossible to pin down one single reason. One event that’s definitely linked to playing a part in the crisis we’re in today is the Great Recession. The Great Recession began in September 2008, and our nation has yet to fully recover from its effects. While the economy has pulled out of a full-blown recession, a multitude of people still struggle to make an adequate living or find affordable housing, education, and healthcare. We still have a long way to get back to where we were economically.
Back in 2008, student loan debt was about $671 billion. Since the recession, that amount has ballooned to an astounding $1.5 trillion. In August 2008, the mortgage and housing crisis was already in full effect, but the real crash began in September when the massive financial firm Lehman Brothers filed for Chapter 11 bankruptcy. Overnight, tens of thousands of jobs were at risk, and the banking world was shaken. The collapse of the firm and subsequent recession created an environment of high unemployment, stagnant wages, and lower property values, making it extremely difficult for many families to be able to afford higher education.
Tightening State Budgets Meant Higher Costs for Students
At the same time, states were forced to tighten budgets, limiting how much aid could be given to public colleges. This, in turn, caused a large number of colleges to raise their prices. Due to the poor job opportunities, many people viewed college as a path to opportunity, and despite the rising costs, attendance soared. Ten years later, a multitude of these Americans are still saddled with student debt. Community colleges couldn’t keep up with the high levels of enrollment, paving the way for an increase in attendance in costly for-profit colleges.
A Slow Road to Recovery
As states began to recover, they returned to funding colleges, yet numerous colleges failed to lower tuition to what it had been prior. Today, only six states are funding colleges at levels that are equivalent to or higher than they were prior to the budget cuts. As states sluggishly recovered from the recession, job opportunities remained scarce, so people enrolled in graduate school, in hopes of having increased opportunity — and higher pay — within their field. And many of them needed to take on more debt in order to do this. In fact, a greater number of students attended graduate school (nearly 3.9 million) in 2011 than they had in the year leading up to the Great Recession (nearly 3.6 million).
Certainly, there are other factors involved in the creation of the student loan crisis we’re in, but it’s hard to argue that the recession played no part in families having less money for education, rising costs of college and an increasing urgency to receive a higher degree in order to have better employment opportunities. It’s also important to stay mindful of these factors, if and when another recession hits.
Need help paying for your student loans?
Let Ameritech Financial pave the way towards financial freedom.Learn More