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5 Ways Student Loans are a Drag on Graduates and the Economy

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With total student loan debt soaring past one trillion dollars, explaining exactly how this huge debt affects individuals and the economy as a whole can be a challenge.  Though it is impossible to put an exact number on the damage done by student loans, it is possible to look at the many ways it hinders individual people and society at large.

1) Student loans make buying a home much more difficult for some, and impossible for others.  As one study found, the average single student debtor is likely ineligible for the typical home mortgage due to their debt-to-income ratio.  With 1 in 5 American households carrying student debt, this means student loans are preventing many potential home sales.  As we learned from the current recession, our economy is highly dependent upon home prices and sales.

2) Recent graduates don’t even have the necessary credit for smaller purchases, such as a car lease.  Like the issues with mortgages, because people with student loans have large debt amounts, their debt to income ratio prevents them from even leasing a car.  Furthering the problem is the fact that many banks are now eliminating programs that were created for recent grads an military veterans.

3) Student loans hurt small businesses.  According to the Consumer Finance Protection Bureau, “Student debt may limit consumers’ ability to access small business credit and to save capital.  If consumers are able to save enough to start a small business, student debt burdens may require them to divert cash away from their businesses so they can keep up with their student loans.”  As one student found, “47% of student loan borrowers said that their debt was the deciding factor, or had considerable impact, on their decision or ability to start a small business.”

4) Engagements, marriages, and children are delayed because of student loans.  Difficult finances make funding these major life events very difficult.  CDC statistics show that the birth rate has been on the decline since 2007, with the sharpest decline among women in their 20′s.  As one 20-something succinctly put it, “The American Dream is … we go to school, we graduate, we get good jobs, we buy a house, we have kids … And it’s just like none of that has happened.”

5) Student loans are a huge hurdle in saving for retirement.  For people struggling to pay the bills week to week or month to month, bills 30 years from now are a very distant concern.  For a generation of young people who see social security as more of a hope then a promise, the inability to save for retirement is troubling.  As calculated by one finance site, the average student loan borrower won’t be able to retire until they reach age 73.

Putting these facts together, the burden of student loan debt becomes much more clear.  It dramatically alters the lives of students, and it impacts many facets of the economy.

The Sherpa5 Ways Student Loans are a Drag on Graduates and the Economy
  • MoneySmartGuides

    All scary stats that show something needs to be done about student loans. I still think the government needs to put a lower limit on how much you can borrow in total for college. With this, many won’t be able to afford college, which will force colleges lower tuition (I’m convinced that the skyrocketing increase in tuition costs is because I can get a lot of money from the government to attend college). Of course, I might just be living in a fantasy world too.

  • http://www.aterriblehusband.com/about/ ATerribleHusband

    Not surprised by these. It’s a huge monthly drain. I also agree with MoneySmartGuides that the ease of government student loans plays some role in colleges hiking tuition costs because there is less of a sticker shock in the increase when it’s not coming out of your wallet until years down the road.