Obama's Legacy of Student Debt

Posted: May 14, 2014 3:00 PM

The Wall Street Journal published the chart above today based off a recent Federal Reserve Bank of New York report on trends in U.S. household debt.

As you can see from the chart, while mortgage, auto, and credit card debt still has not reached pre-financial crisis levels, student debt has exploded and now totals more than $1 trillion.

Why does this matter to you?

For starters, as the Federal Reserve notes in a separate blog post, Americans with high levels of student debt are less likely to buy new cars or homes. This means fewer jobs in the auto and housing sectors of the economy, and the study suggests that student debt is probably causing lower levels of spending in other economic sectors as well.

And on a micro level, more student debt means fewer options for graduates. If you have more debt, you are more likely to take a job with a steady employer than work at a new firm or start your own company.

Less spending on a macro level, and less risk taking on a micro level, means less economic growth overall. In other words, student debt is a major drag on the economy.

How is this President Obama's fault?

For starters, Obama has presided over the weakest economic recovery since the Great Depression. His Keynesian deficit spending failed to stimulate the economy, and instead of making it easier for businesses to hire people by lowering the cost of employment, he made hiring more expensive through a slew of new federal mandates and regulations, including Obamacare's employer mandate.

Since employers are not hiring people, more high school and college graduates are choosing to go back to school instead of work. And they are borrowing a ton of money to do so.

This is why the unemployment rate keeps falling despite the fact that the number of Americans with jobs still has not recovered from pre-recession levels. Younger Americans are borrowing money to exit the job market and go back to school.

Looking ahead, if our nation's colleges and graduate schools are teaching valuable and marketable skills, then maybe this generation of students will eventually recover.

But if young Americans are just sitting on the economic sidelines, and gathering a mountain of student debt in the process, then the Obama presidency will be a slow motion disaster for decades to come.