Learn How Student Loans Impact the Economy
Student Loan Debt’s Negative Economic Impact
While graduating from college can lead to a better, higher-paying career, graduating with student loans has some disadvantages. Here’s a rundown of the negative consequences of student loan debt:
- Reduced New Business Growth
- Lower Homeownership Rates
- Reduced Net Worth
- Consumer Spending is Declining
- It is more difficult to keep afloat during a recession.
- Difficulties in Saving for Retirement
- Increased emphasis on social safety net initiatives
- Increased Probability of Delinquency
- Students have less economic power than adults.
- Inequality Across Generations
- Delays in Ordinary Life Events
Reduced New Business Growth
Small business growth tends to slow as student loan debt rises. Students who are heavily in debt cannot afford to take the risk of starting a small business. Even if they desire to start their own business, they are less likely to be approved for a loan or line of credit if they have sizeable personal debt.
They might also be unable or reluctant to work for a start-up that could fail at any time. Student loan debt might make it challenging to take professional risks, such as working for a new company.
Lower Homeownership Rates
According to a 2019 Federal Reserve analysis, student loans constitute a significant barrier to homeownership, preventing 400,000 young Americans from purchasing a home between 2005 and 2014. Another study discovered that students who graduated with debt had residences valued $103,000 less than those who did not have student loans. When you apply for a mortgage, your debt-to-income (DTI) ratio will be calculated.
