New Data Shows That America's Student Debt Crisis Isn't Just Bad For Students


Are you ready for some terrible news? Look no further: Student loan debt might already be the bane of your existence, but new evidence suggests it's also ruining America's economy.

The New York Times reports that debt might be a major reason why the number of 27- to 30-year-olds taking out home mortgages has plummeted in the past decade:

Image Credit: Slate

With average loan balances of $29,400 and national student debt growing from $300 billion to $1.1 trillion since 2003, fewer college graduates are "[entering] the 'grown-up' economy" — i.e., buying houses and cars and filling them with pricey consumer products.

This is a problem: The housing industry has always played a major role in lifting the U.S. out of past recessions, with investment driving growth and creating a multitude of new jobs. Not so much this time around: Since the financial crisis of 2008, the industry has made less than half its usual economic contribution, meaning our economy would normally be growing at twice its current rate.

That's unlikely to change under current conditions. Student loan debt is unique in its relentless lack of mercy, with even speed bumps like bankruptcy and death failing to elicit sympathy from collectors. With no relief in sight, young debtors have a lot more of mom and dad's cooking to look forward to, and fewer prospects for establishing the traditional spending patterns expected of them.

It gets even worse: Student loan delinquencies have surpassed credit card delinquencies in the past decade, while student loan debt has surpassed all other forms of non-housing debt:

Image Credit: Federal Reserve Bank of New York

Image Credit: Federal Reserve Bank of New York

Reasons include skyrocketing education costs and the harsh demands of a recovering economy, where a college education has become increasingly necessary to compete.

The government certainly isn't helping matters, having raked in $41.3 billion (depending on how you calculate) in profits from student loan repayments in fiscal year 2013. That's good for the nation's third-highest profit margin, after ExxonMobil and Apple.

And instead of finding new ways to subsidize public higher education, our representatives are pumping $41.3 billion into the War on Drugs, $80 billion maintaining an overcrowded prison system and $27 billion a year for 55 years on the F-35 jet program, "one of the most expensive such projects in history."

Is there any hope? It's hard to say. The Times report gets complicated when you consider young people's prior spending habits around housing. It turns out that before 2008, 27- to 30-year-olds with greater student debt were more likely to hold a mortgage than those without loans, perhaps because of better credit resulting from timely payments, or a stronger inclination to borrow money in the first place.

The current shift from this pattern could be explained by a few factors: First, that access to credit is getting more limited, and second, that young adults' "preferences" might be moving away from home-buying altogether. Also of note is that young peoples' credit risk scores improved slightly from 2012 to 2013. So there's that.

But in the end, we're looking at a pretty stagnant economy as long as young people steer clear of the housing market. And if student debt really is the root of the issue, we have much bigger problems to deal with than we thought.