How the Student Loan Debt Crisis Affects the Economy

In the year 1973, there was a fundamental change in the student loan industry. That change was the founding of Sallie Mae. Under Sallie Mae, student loans became easier and easier from prospective university students to receive funding. This ease of funding caused an explosion in student loan debt. Between the years 2006 and 2016, student loan debt grew an incredible 170% from about $400 Billion to over $1.3 trillion.

How student loans effect you

There have been several studies that have shown that student loan debt affects your personal life, just like it affects your financial life. In the case of men, student loan debt shows little to no effect on marriage, but there is a correlation between increased student loan debt and unlikeliness from young women to get married.

Many college graduates are becoming more and more disillusioned with both higher education and the collegiate experience due to the predatory practices of student loan providers. These predatory practices combined with the depreciating return on investment that is the American college may cause an entire generation to forgo university.

How student loans affect the economy

Macro-economy

Student loan debt has to come from somewhere, that somewhere in the case of federal student loans is from the taxpayers. The more student loans there are, the larger the National debt grows. Just like how the 2008 financial crisis was built upon the growing bubble that was the mortgage market, the next financial crisis may be built upon the bubble of student loan debt.

Student loan debt has also been shown to hurt the youth housing market. This means that for many young adults, the money that they would be saving for their first home is instead going to their student loans payments.

Micro-economy

While federal student loans come from taxpayer money, the credits also affect the local economy. In a 2015 study by the Federal Reserve Bank of Philadelphia, aspiring entrepreneurs with student loan debt were less likely to achieve their dreams of starting their own business. While the average person doesn’t wish to open a small business, the average person does experience financial difficulty from time to time. Unlike all other forms of credit, student loan debt will stay will you even after declaring bankruptcy. 

Another effect of having student loans is the decreased available disposable income in many millennials. This income that generally would go to investing, savings or purchasing is instead repaying a loan from years ago. This loss in disposable income has cause several sectors like restaurants to falter in recent years.

The future of student loan debt

With the coming of the 2020 presidential election, there have been several candidates like Bernie Sanders and Elizabeth Warren, who want to make student loan debt the main point in their presidential bid. With the bubble that student loan debt has become, it will surely become a focal point in the coming election.

About Oleg Stogner

Since 2005, Oleg has been involved with over $1 Billion in mortgage fundings and is recognized as an expert in residential mortgage lending. Oleg is licensed and able to originate mortgage loans in all 50 states. You can contact me here.