Independence Day: Impacts of Student Loans on Young Americans’ Purchasing Power

Happy Fourth! Last year we have written an article which argued that skyrocketed college cost and student loans have caused many young Americans lost their financial independence. The logic is this. The amount of $1.2 trillion student loans have prevented borrowers from acquiring a bundle of goods or services which (normally) will optimize their utility function (loosely translated as their happiness/satisfaction level). If on-average, every undergraduate student has to take $50K loans to complete their college degree, then roughly speaking there are 20 million young Americans (has been reported about 40 million) who may have to live with a lower quality of life. This group of fresh graduates has lost their purchasing power because colleges keep increasing the tuition which forces them to take more loans. Many people may not think that taking student loans in time t (current time) is equivalent to transferring their “future wealth” to someone else. Does anyone see that this system has been borrowed and implemented from the “bees’ colony”? Supporting an inefficient system financially is equivalent to pouring salt into the sea.