Student Loan Debt and its Effect on the Economy

Jul 22, 2015 | Finance

Moving from the general public funding post-secondary schooling to individuals having to finance their own education has put a large amount of students in an overwhelming amount of debt. Not only is it difficult for the students, but student loan debt has negative effects on the economy that reach much further than their campuses.

Reducing College Attendance

Even though we have the notion that going to college is the best way to give yourself a financially stable future, it has brought many negative effects to lower and middle class families. Unless you have the tens of thousands of dollars necessary to attend a reputable institution, you are faced with the need to take out a student loan. The idea of being even further in debt for low to middle class families is a risk that they are not willing to take. Therefore the overall number of attendance for students going to post-secondary institutions is much lower than ever before.

Not only does student loan debt deter students from ever attending a college in the first place, but it also deters them from finishing their degree once they have started. This is where the first economic problem comes into play. Students are unable to finance the rest of their schooling and they drop out without a degree and with huge student loans that need to be paid. The problem is that they don’t have the degree to help them get the job that makes enough money to cover the costs of their student loans so they are essentially stuck in debt for a long period of time.

Purchasing Homes and Cars

According to data that was gathered by New York Fed, there is an economic drag on today’s society in terms of homes and cars because of students that are graduating (or dropping out) with student loan debt. This is because they’re so consumed with paying their debt off that they do not have the money to purchase homes or cars. Even though this is not a conclusive statement, the effects of student loan debt have been noticed in both the housing and automotive markets.

Straining Household Spending

One of the most important aspects of the world’s economy is the amount of money that the average household will spend throughout the year. Although in a perfect world every household wouldn’t have to worry about any debt, the rates of private debt are increasing, making it more difficult for households to put money back into the economy. All of the extra cash flow that people have goes back into the money that they owe on loans and other sources of debt, leaving them with little to no money for consuming or investing.

It is also important to take into consideration the negative effects that household debt has in the event that the economy goes through a financial crisis. This can make the issues significantly more severe and incredibly difficult for people to climb out of.

Starting the Vicious Cycle

The more student loan debt that people gather, the more difficult it is to get out of the debt and be able to put money into savings again. The more debt that students from all incomes gather, the more interest they have to pay on the loans on top of the total amount of the principal loan. In fact, most students find it difficult to cover the interest payments, let alone worry about paying down the principal loan as well. This is another factor that negatively impacts the economy. Since the student loan system doesn’t bring the cost problems up to colleges, that’s where the vicious cycle begins. The loan system lets all of the local colleges raise their prices which forces more students to take out loans, even higher loans than ever before. Then they are stuck with a multitude of student debt that they are trying to get out of.

State College Programs

In the past, students would be able to apply for many scholarships and other funding programs that their state would offer to them. Since the economical standing of the United States isn’t at a high level, states are under tighter budgets than ever before. This has led them to get rid of a lot of funding programs that would otherwise help students to pay for their schooling. The lack of these programs adds extra pressure for students to sign up for loans that can help to pay for their college.

More than Tuition

It is also important to consider the costs that students are responsible for. Even though paying for tuition is the most difficult part as it is the most expensive, there are other costs associated with getting a post-secondary education. Travel expenses, books, school supplies, and even on-campus housing are just a few expenses that need to be taken care of. This can add even more debt to an individual’s name after they graduate.

Brownstone Law Group, PC. may be able to provide student loan debt relief or credit card debt relief if you find yourself struggling with your unsecured debt. Call us at (888) 853-8871 or visit us at for more information about our services.

This article has been reviewed and approved by Thomas A. Moore, managing attorney Brownstone Law Group, PC. California Bar # 148698. This article is for informational purposes only, does not provide legal or tax advice of any kind or form any type of attorney/client relationship. This article was published on July 22, 2015.


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