Student Loan Debt: Bad for the Economy

At the end of 2003, American students and graduates owed just $253 billion in aggregate debt; by the end of 2013, American students’ debt had ballooned to a total of $1.08 trillion, an increase of over 300%. In the past year alone, aggregate student debt grew 10%. By comparison, overall debt grew just 43% in the past decade and 1.6% over the past year.

The Federal Reserve of New York released some numbers last week that show — surprise! — student loan debt is higher than ever. Sam Frizell at Time talks about how student loans aren’t just bad for our own personal economies, they’re bad for THE economy.

Knowing the kind of debt he’ll face once he graduates, Rong says he rarely goes to happy hours, and Handel says she’s much less likely to get regular haircuts, schedule prompt doctors’ appointments, or buy the small things that add up — and, in aggregate, eventually prop up the economy and drive GDP growth. “It’s the little things,” she says. “Putting off a haircut for a long time, getting more makeup, prescriptions, or doctors appointments, the things that I don’t even think cost money but end up adding up a lot.”

YUP. Also, as we know, none of us college grads are buying houses — not just because we don’t want to or can’t afford a mortgage payment on top of Sallie Mae, but because banks are newly hesitant to lend money to people with a bunch of student loan debt. These newly tightened underwriting standards mean a slower recovery for the housing market:

In 2005, before the Great Recession, having student loans was a good indicator that a graduate also had a mortgage. Student loans usually indicated a higher level of education, a higher salary, and better credit-worthiness. Better-educated, higher-earning people were more likely to have the capital and the wherewithal to take out a mortgage; but now that dynamic has changed. Bigger debts mean college graduates are less likely to take out mortgages than they used to be, dampening economic growth. “Now that’s kind of gone away, that relationship,” Haughwout says. “Knowing that someone has student debt doesn’t tell you very much at all about whether they’re going to have a mortgage in spite of the fact that it probably still signals higher level of education.”

Photo: Wonderlane

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