College is an investment. And like any investment, there is risk involved. But a college education also has the potential to yield great rewards—both for the individual and for society as a whole. Hundreds, if not thousands, of studies have shown that, on average, college graduates earn more money, and are more likely to be employed than those without a degree,
But there is another way to look at the value of a college education: as an investment in the future of our economy. As the cost of college has risen and the job market has become increasingly competitive, the question of whether a college education is worth the investment has become more pressing.
There is no simple answer to this question. But there is no doubt that student loan debt is having a major impact on our economy—and not in a good way.
In this article, we will discuss how student loan debt is impacting the economy, both in the short term and in the long term.
How Bad is It?
Let’s get down to brass tacks here.
The state of our student loans is pretty dire.
The total amount of student loan debt in the United States now stands at around $1.75 trillion, a burden shared by roughly 48 million borrowers. That’s more expensive than the auto debt (roughly $1.3 trillion)! It’s getting harder and harder to just tell students to save money in college as many of our parents were able to do during the 1970s.
Consider this: students don’t have to contend with just their loans. Interest rates on these loans have been rising steadily over the past few years, meaning that the total amount of debt is only getting bigger.
When you’re paying off student loans well into your 30s or 40s with no end in sight, it can be hard to think about anything else. Skipping your weekend avocado toast brunch or poring over free travel hacking tips barely makes a dent in student loans anyway—so why not just go all out and enjoy your youth?
How Student Debt Strangles the Economy
What’s the big deal? So what if a few millennials are eating out less or taking fewer vacations?
The problem with this line of thinking is that it fails to take into account how student loan debt can adversely impact the economy.
Let’s go over a few ways in which this happens:
Puts off milestones
Borrowers are putting off major life milestones like buying a home or starting a family because they can’t afford it. And even those who are paying their loans on time are making sacrifices in other areas, like retirement savings.
Delaying major life milestones has a domino effect on other parts of the economy. For example, when young adults put off having children, there is a decrease in demand for child care, which impacts businesses that provide those services.
And when you’re struggling to make ends meet, it’s hard to think about anything else. All of your energy goes into paying for essentials like housing, food, transportation, and paying taxes.
Keeps minorities down
Student loan debt also disproportionately affects minority borrowers. minorities are more likely to take out loans and they also tend to have higher loan balances than their white counterparts. This is partly because they are more likely to come from low-income backgrounds and attend for-profit colleges, which are particularly predatory.
These higher loan balances put minority borrowers at a disadvantage. They have less money to spend on other things and are more likely to default on their loans. This can lead to a cycle of debt that is difficult to break out of, even with income-based repayment plans.
The unemployment loop
Student loan debt can also trap borrowers in a cycle of unemployment.
When you graduate from college, you might not be able to find a job right away. And if you can’t find a job, you might have trouble making your student loan payments.
What’s even more troubling is that this cycle appears to be perpetuating itself—the longer you’re unemployed, the harder it becomes to find work; and the harder it becomes to find work, the longer you stay unemployed (a phenomenon known as prolonged unemployment).
This is particularly relevant when considering student loans because unemployed borrowers often cannot make their monthly payments; when they default on their loans, their credit scores suffer, making it even harder for them to find gainful employment—not to mention making them ineligible for certain types of financial aid if they decide to go back to school,
There’s no doubt about it: student loan debt is having a significant impact on both individuals and the economy as a whole. From delaying major life milestones to influencing job choices and career paths, student loan debt is affecting virtually every aspect of young people’s lives; and as the amount of outstanding student loan debt continues to grow, so does its impact on society at large. It’s time we start finding ways to address this mounting crisis before it becomes an insurmountable one.