This again.
That was the reaction of Mark Witte, senior lecturer of economics at Northwestern University, when he first heard the news that Congress would have to debate about the debt ceiling.
Current high school students will feel a large economic impact in the future solely due to the greater accumulation of debt if the U.S. continues to raise the debt ceiling, Witte said. With expected inflation excluded, borrowing money to buy houses, start a business or go college will be significantly more expensive than it would have been today.
“[If this problem continues] it might limit where [students] or [their] kids go to college,” said Witte. “It might limit whether [they] get a four year degree or an associates degree from a community college. It might limit what people are able to do in terms of going on to graduate school. So, we may end up with fewer lawyers or physicians, and then, it’ll be more expensive to get health care or legal help later on.”
Witte explained that although almost everything becomes more expensive over time, the cost of borrowing money increases as the debt increases.
Macroeconomics teacher Robert Berg said that many students do not know that the current debt crisis could potentially have a huge impact on their futures.
Berg said that if the U.S. debt ceiling continues to increase, the U.S. will continue to borrow more money increasing the demand for loanable funds, which would drive up interest rates, making it more costly to make big purchases.
Witte said that this may even result in smaller family sizes.
“A large debt might reduce the number of children [students] are willing to have,” said Witte. “[They] know [they] have to put them all through college, and some may not even end up getting born because [they’ll] be like,‘Wow, it’s just too expensive!’”
Berg compared the U.S. economy to a credit card, explaining that credit cards can be used to buy a lot of goods today because people may not have sufficient funds to pay for all the goods at once. The consumer makes minimum payments and continues to spend. In the long run, this person would not be able to pay back the very large amount of debt that has been incurred.
Witte said that the high school students of today will have to make decisions they may not have thought they would have had to make once they reached college.
“In college, besides the fact that students could have to work to get through college, they might not be able to take as many classes, have to reduce the number of years [or] possibly delay starting until they get the money together,” Witte said.
Witte explained that colleges may respond by reducing time commitments for degree completion. Northwestern’s law school even offers a two-year accelerated program as an alternative to the traditional three-year program.
Additionally, Berg said that current high school students will be financially disadvantaged when they have to take care of their parents. The current generation is composed of a significantly smaller population than his own, leaving a “smaller pool to draw resources from, for a larger pool of older people,” meaning that there will be less resources to accommodate the older population when students grow up.
Witte agrees with Berg in that the debt will pose significant problems for care of the older generation.
“If [the U.S.] continually increases the debt, then that becomes a financial problem where services like Medicare could be affected,” said Witte. “If this is the case then the older community, who may rely on Medicare for assistance, would see cuts to that service, which would make it more difficult for [their children] to take care of them alone.”
By the time the student generation is out of college and beginning to develop independence, Berg said they will have a huge weight on their shoulders. This weight would be the result of the large amounts of money that the federal government has borrowed over the years.