Tuition and school fees, and by association student debt upon graduation, have been increasing consistently over the past several years. Within the graduating class of 2018, more than two-thirds of college students took out at least one student loan, and they graduated with an average student debt of $29,800. Many of the people reading this article are either going to take on student debt, are currently dealing with it, or are still dealing with the ramifications of taking it on.
It may seem like this is a problem that manifests on a strictly individual level; the person with crippling student debt deals with it on their own, without much of an impact on those around them. But the reality is, student debt is starting to reshape our economy-and that’s not a good thing.
Sheer Size of Debt
First, there’s the sheer size of the debt. With $30,000 in standard debt and an interest rate of approximately 5 percent, the average graduate would be stuck paying $1,500 a year just in interest, with minimum payments of several hundred dollars a month. Those extra payments put a significant burden on a young adult’s budget, especially when they kick in before they’re able to find a steady job, and before they have any other streams of income. If left unchecked (i.e., if payments aren’t made), the principal can grow to become even more intimidating.
Having little to no credit history, but a massive amount of debt is also problematic for young adults’ credit scores. To succeed financially, a good credit score-generally a score above 690-is practically necessary. A good credit score will make it easier to qualify for other loans (including a home mortgage), decrease the interest rate you’ll pay for those loans, and may even make it easier to get an apartment or land a job. Because students are graduating with bad credit circumstances, it takes a long time for them to “repair” that score and start building a life.
Homebuying, Children, and Consumerism
How exactly do these financial limitations impact the economy?
The economy grows based on a few factors, including technological advancement, but mostly because of consumer spending. When the citizens of a country are working and producing things, then spending the money they earn, the economy thrives. Unfortunately, students who are saddled with debt the moment they graduate aren’t capable of spending much money.
Due to a combination of a poor credit score and set monthly payments, most new graduates can’t afford to buy a house. Because of this, many millennials are delaying starting a family and having children. Fewer children means fewer workers to drive economy growth in the future. Millennials are also spending less on consumer goods, which makes economic growth more difficult.
Student debt wouldn’t be quite as big of a problem for the economy if students could reliably find a job after graduating-but that isn’t typically the case. A few decades of rhetoric suggesting that going to college is necessary to find a good job has flooded the job market with college graduates. Jobs that don’t require a college education, like jobs in various trades, are suffering from a shortage of applicants, while thousands of graduates are stuck without a job in their chosen field. This lack of job availability has dampened salary growth among college graduates, and has lessened consumer spending even further.
Retirement and Multigenerational Effects
We also need to consider the effects that higher student debt can have on other generations. For example, with fewer young adults buying houses, baby boomers are stuck with unsellable real estate, meaning they can’t downsize to a home appropriately sized for retirement. And with less consumer spending, long-term investments might not pay off as reliably as they have in the past, making retirement even more difficult.
Is There a Solution?
So is there a solution to this problem? There are many hypotheses for how to approach this in a way that preserves the quality of college education while simultaneously making it more affordable for students. For example, some politicians have suggested subsidizing the cost of universities, giving every student in the United States a credit when attending higher education. Others have suggested imposing limitations on the universities themselves, using salary caps and purchasing restrictions to ensure their budgets are used in a way that’s favorable to students. Providing more resources to students, like grants and scholarships, could help, but the bigger issue is the cost of tuition in the first place.
There’s no easy solution to “fix” the problem of higher student debt, but it’s important to address the problem before it worsens economic conditions any further. Continued increases in average graduating debt would put more stress not just on young adults, but on the economy at large.