Student Debt Crippling US Economy
As college students, we all know how student debt can influence our behaviors after graduation in terms of moving to popular cities like New York or San Francisco, investing towards retirement, and consuming various amounts of goods and services. As a matter of fact, total student debt in the United States has gone from $364 billion to a staggering $1.2 trillion from 2005 to 2015. But there is another hidden cost to this giant bubble of debt that not many millennials are aware; since this debt makes millennials not spend more money, it causes a domino effect on the entire economy that affects banks, mortgage lenders, real estate investors, and other private firms that rely on Generation Y.
Although housing has been up to speed in regaining its lost wealth from the Great Recession in 2008, it has not been a fast rise within the 18-30 year old generation. As a matter of fact, the amount of millennials with a mortgage has gone down from 11% of the population in 2005 to 7% this past year.
As people who have applied to a mortgage before may know, lenders and banks take a look into your total debt and total income. This is where the students become unavailable to receive these mortgages to boost the economy due to high debt. This then creates a strong demand for small bedroom apartments for rent which does not have the same impact on the economy as owning a home. Add this to the fact that many millennials start college, drop out, and keep the existing debt, which can potentially lead to less income and more liability.
Not only does the debt that approximately 40% of millennials account for have a negative effect on the amount of mortgages provided, but it also decreases demand for other goods and services that are targeted towards millennials such as video games, high fashion clothing, concerts, and other entertainment and lifestyle consumptions. It is well known amongst current college students that many have to find jobs that are not in their field or spend less money in order to pay back their loans.
This problem has led several politicians, such as Bernie Sanders, to try to appeal to the millennial generation by stating plans to cut costs of tuition in public colleges from a reasonable amount where one wouldn’t need to take out a loan and transition to college to be completely free. This shows a pressure to act that even politicians face on a daily basis that can substantially impact the US economy and, most directly, millennials.
Thankfully, some private firms are taking this problem into their own hands by providing more financial flexibility and lower interest rates than some large banks and the government. Social Finance, or SoFi for short, helps students refinance both their privately and federally funded student loans to where it can be a whole lot easier to pay off for the borrower. This all helps current and recently graduated students get on their feet which in turn helps grow the US economy in all sectors.
There are so many drawbacks to this huge $1.2 trillion dollar bubble of student debt has on both the economy and on students, but with the current legislative proposals happing and new business shaking up the marketplace this burden will improve to where everything will start to run smoothly in the private and public sector.
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