grow 

The Student Debt Dilemma: How College Loans Are Hurting the Economy

By Aimee Hosler | Small Business

Is college still worth it? A new Pew Research study gives naysayers more reason to question the current higher education system. According to the report, college graduates under 40 with student loan debt have a lower median net worth than their peers who never went to college at all. But Richard Fry, the report’s lead author, is quick to dismiss the idea that college is no longer an important investment. In fact, the same study shows those with bachelor’s degrees earn about twice the income of those without degrees. So why are so many grads lagging behind in terms of wealth accumulation? Some experts argue that the Pew report says less about the value of college as it does about the dangers of skyrocketing student debt — and its widespread economic impact.

Student debt: 7 takeaways from the Pew report

To compile the study, Pew used data from the Survey of Consumer Finances, sponsored by the Federal Reserve Board of Governors and the Department of Treasury. These surveys have historically included up to 6,500 households, and are conducted every three years. In other words, the Pew report is large-scale, and provides a fairly thorough glimpse into how education and debt impact the economic well-being of young workers. Here are several key takeaways from the study:

  1. College grads with student loan debt have lower median net worth than those without. This difference is not slight, either: $8,700 to $64,700, respectively. The fact that graduates who took out loans to finish school are having a harder time accumulating wealth might be expected, but here’s the kicker:
  2. Graduates with student debt have lower median net worth than those who never went to college at all. Those who bucked college altogether and went straight into the labor force have a median net worth of $10,900, which is $2,200 more than their student-debt-laden peers. Fry told The Los Angeles Times that this has less to do with earnings than with getting a late start in building their nest eggs. More on this below.
  3. Those who borrow in college are more likely to take on other debt. College graduates who took student loans carry nearly twice the debt as those who did not — but very little of it is education-related. While the total median indebtedness in this group is $137,010, only $13,000 of that is attributed student loans. The rest comes from other types of debt, particularly car loans and credit cards.
  4. The debt-to-income ratio for households with student loans is growing. The opposite is true for those who did not borrow money to complete their educations.
  5. Student debt correlates with lower financial satisfaction. According to Pew, those with student loans report being less content with their finances, and are less likely to say their investment in college has paid off.
  6. Student debt does NOT correlate with earnings. The median household income for college grads with loan debt is roughly the same as that of college grads without debt.
  7. Education still pays. According to Pew, workers with bachelor’s degrees make nearly twice as much as those without, regardless of how they funded their educations.

While the Pew report illustrates a clear relationship between education, debt and financial well-being, it also supports a much more alarming thesis not tackled by the researchers directly: Student debt is a drain on the U.S. economy.

How student loans could sink us all

What killed the American housing market? While one can certainly make a case that risky investors triggered its decline, both The Atlantic and The New York Times suggest student debt is at least partly to blame for its persistent sluggishness — and they believe the Pew data supports this perspective. How? A decade ago, Americans carried about $300 billion in student loan debt. Today, that figure stands at $1.1 trillion and is growing. Overall, 70 percent more students are getting loans and borrowing about twice as much. In the past, higher wages would offset student debt in relatively short order, but that is less true in today’s economy.

What does all of this have to do with the American housing market? The Pew report highlights just how much student debt costs borrowers, both in terms of immediate debt and additional debt later in life. The Atlantic and the Times say this wall of debt has had a devastating impact on a demographic that traditionally constituted the largest share of first-time home-buyers, which has, in turn, had a devastating impact on the housing market — and the economy at large. As the Times put it, those in their 20s and 30s are “the engines” of economic activity. When they suffer, so do the rest of us.

This article was originally published on OnlineDegrees.com.

This article was syndicated from Business 2 Community: The Student Debt Dilemma: How College Loans Are Hurting the Economy

More Business articles from Business 2 Community:

Subscribe to our mailing list
* indicates required
Small Business Services