Rising student debt has a ripple effect on economy

Nazareth College student Malik James knows one thing for sure: He and his parents expect to be deep in debt — taking out loans totaling about $175,000 for his education  — by the time he earns a law degree.

They are among about 44 million student loan borrowers who, according to a new report by the Federal Reserve Bank of New York, have now accumulated $1.34 trillion in debt.

The total student loan debt at the end of last year was about 170 percent higher than a decade earlier.

MORE: NY students default less than US average on student loans

Mortgages still account for the bulk of household debt, but the $34 billion growth in student loan borrowing during the first quarter of this year helped push household debt to $12.73 trillion, surpassing the total when the Great Recession took hold in 2008.

The dynamics are different in 2017, with other signs showing a much stronger economy, but they do point to the growing burden of student debt. Though housing debt at the end of 2016 was about $1 trillion less than its previous peak in 2008, student debt grew by about $700 billion.

In a report issued on Wednesday, the New York Federal Reserve found that in each type of borrowing, a higher percentage of the Rochester area's population was in debt in the fourth quarter of 2016 than the national average — and that included 20.7 percent of consumers owing student loans.

But a bit of good news was that the average student loan debt for the Rochester area — $29,100 — was less than the national average of $29,900.

Until there’s a better handle on controlling the cost of college, student debt will likely continue to rise nationally and have a ripple effect. The largest amount of student loan debt nationwide — $433 billion — is held by those between the ages of 30 and 39.  

"There is no question that the large student debt is a drag on the economy  — dollars earned that have to pay off debt and not be used to buy a house, purchase a new car or start a family," said George Conboy, chairman of Brighton Securities, which is an investment brokerage and financial planning firm.   

MORE: Student loans a challenge for young home buyers

James, 20, of Queens is determined to realize his dream of becoming a prosecutor and FBI agent.

It will come at a price that affects James' spending — but that is a sacrifice that James considers an investment in his future.  

The idea of homeownership is not something that, he said, would enter into his plans until he turns 30.

Going to school also means working two jobs — about 20 hours a week — so that he doesn't have to put any more financial pressure on his parents. His father, Bentworth, works in electrical construction. His mother, Frances, is a special representative for Verizon.

Buying a new car is out of the question for now, but James is hoping to save $3,000 for a used one.

James doesn't know when he'll be debt-free but is determined not only to get himself out of debt but also help his parents repay the loans they've taken out for his college education.

The tuition-free option — the Excelsior Scholarship — that passed in April as part of New York's budget is an attempt to curtail the need for borrowing by students attending public colleges in the state.

But that won’t help James.

James expects to accumulate a sizable debt, even though he’s in a cost-saving 3 + 3 program. He just completed the second of three years of undergraduate studies and, if he continues to do well academically, on to Syracuse University College of Law at a reduced price and with some scholarship funds.

MORE: Policy changes are altering student debt landscape

Nothing that President Donald Trump has put on the table in his proposed budget would seem to help James, who notes that one program that has eased the debt burden for some students — public service loan forgiveness — is on the chopping block.

"I just hope the Trump administration won’t make it more difficult for me to pay off my loans,” he said. "It’s difficult already."

Financing a college education, however, will become even more costly July 1, when the interest rates for new federal student loans are expected to increase.

With no relief in sight, experts place a priority on making smart choices in selecting a college and trying to limit borrowing.

Mark Kantrowitz, an authority on student loans and financial aid based in the Chicago area who runs a popular website, Cappex.com, said that parents wanting to make the cost of college more bearable should take steps such as paying for tuition in monthly installments, searching for scholarships and limiting how much they borrow.

University of Rochester's Simon Business School Dean Andrew Ainslie notes that times have changed from a century or so ago, when a college education was for the wealthy whose parents didn't have to worry about costs.

"There has been a slow transformation to get as many people as possible through the university,"  Ainslie said.

With this desirable change, more attention should be paid to whether colleges are preparing students for today's job market: "I think the Obama administration moved us in the right direction, but we still have a long way to go — to focus on STEM education and looking at what America needs and providing that." Ainslie said.

Experts tell of the need to select a college that is a good fit, meeting career goals and limiting debt.

"One of the things the increasing debt drives home is the need for kids to make a good match with a college," said Patricia Braus, executive director of the nonprofit Rochester Education Foundation.

Financial savvy

Financial literacy has become an important element of selecting a college.

"I really have to explain what each loan is. It can be kind of overwhelming, not just for the student but for the parents," said Olivia Bacot, a program coordinator for the Urban League of Rochester who works with high school students on financial aid issues in applying to college.

Even at that, the process leaves students such as Myrani Jackson, who will be graduating next month from the Rochester City School District's Edison Career and Technology High School, groping for answers.

"I don't fully understand this whole process and why it's so difficult," said Jackson.

JGOODMAN@Gannett.com