Ethan Stoetzer

The United States student loan debt is valued at $1.29 trillion dollars,

According to a live ticker created by MarketWatch, student loan debt is increasing at a rate of $3,055 every second. TheWall Street Journal reports that in 2015, the average student graduated with approximately $35,000 in student loans.

The ever-increasing amount of student loan debt has become a polarizing topic in the race leading up to the Republican and Democratic primaries, with several candidates weighing in on how to address it.

Republican contender New Jersey Gov. Chris Christie has gone on record stating that debt-free higher education is unimaginable. Democratic contenders Vermont Sen. Bernie Sanders and former Secretary of State Hillary Clinton have both taken action, each developing unique legislation to address student debt.



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As candidates from both camps attempt to lower the cost of education by targeting loan interest rates while increasing access to public institutions, a new report published by several New York Federal Reserve Staffers suggests otherwise.

A Federal Reserve Bank of New York report published in July 2015, examines the relationship between the recent expansion of federal student aid and increases in college tuition.

The report highlights three federal aid programs: Federal Direct Subsidized Loans, Federal Direct Unsubsidized Loans and Pell Grants. Each of these government programs increases the credit supply for students to take advantage of, in order to enroll in higher education. The report draws upon the causes of the housing bubble burst that lead to the 2008 financial crisis, as a comparative analysis.

Leading up to the 2008 housing bubble burst, credit was made available to home buyers, increasing their purchasing power in the housing market. This, in turn, inflated home prices above their worth.

In similar fashion, congressional acts between Feb. 2006 and April 2008 expanded the line of credit available to in-need students by revising the Federal Direct programs and Pell Grants. According to the report, “yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012.”

The report’s findings show that of all three programs the Federal Direct Subsidized Loans generated a 65 cent-on-the-dollar increase on college tuition, while Pell Grants generated a 50 cent-on-the-dollar increase on college tuition. The Federal Direct Unsubsidized Loans had little to no effect on the price.

Each loan’s parameters create a different impact on the market. Pell Grants do not need to be paid back by students, while students pay the unsubsidized loans’ interest while in school. The government pays the interest for subsidized loans while the student is in school.



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The report was careful to note that the staffers used colleges’ sticker prices rather than the net price, which is the price after aid is subtracted from tuition. The findings are equal among the staff’s sample of public and private institutions, while for-profit institutions aren’t closely examined.

Identifying a direct culprit in the rising costs of college can be a fruitless venture.

State aid to schools has been on a steady decline. The Center for Budget Policy Priorities reported in May that 47 states are spending less per student in 2014 and 2015, than they did before the start of the recession in 2008. Schools are also spending more money on administrative costs than in previous years, as well as increasing access for students to attend college.

The report more closely examined the short-term effects on financial aid expansion, which is a higher sticker price, depending on the program. Colleges have two options in dealing with expanded aid: They can expand the number of seats they have or accommodate with higher prices.

Most institutions have adjusted by raising prices in the short-term. But the report notes that, in the long term, expanded facilities -- which would ramp up the supply of higher education -- could equalize the price.



Ethan Stoetzer is a student at Rowan University and a summer 2015 USA TODAY Collegiate Correspondent.

This story originally appeared on the USA TODAY College blog, a news source produced for college students by student journalists. The blog closed in September of 2017.