Why Student Debt Isn’t Just A Student Issue

On January 21st, 2016 multiple Democratic Senators spoke about their legislative proposals to combat the student debt crisis. The group included Senator Elizabeth Warren (MA), Patty Murray (WA), and Chuck Schumer (NY), to name a few. The proposal hopes to make community college free for in-state residents, index the Pell grant to stay on track with inflation, and allow graduates to refinance their loans to lower levels. This is good news for Millennials who are currently attending college or who have already graduated. But this proposal is also good news for the entire American population, regardless of generation.

Even after the last loan has been paid, student debt still weighs on our nation’s overall economic health. Student debt’s drag on our economy does not end with the last payment to the creditor. Instead, the story begins there.

A Pew Research Center study shows that Millennials who incur debt after graduation have an average net worth of seven times less than that of their non-indebted counterparts. Millennials with no debt when graduating have an average net worth of $64,700, while Millennials graduating with student debt have only $8,700 on average. Net worth is defined as the difference between the value of assets owned by a household (such as home, stocks, and savings accounts) and its liabilities (such as mortgages, credit card debt, and loans for education).

Millennials with student loans have on average $13,000 worth of them. Large amounts of student debt, of course, lead to less available income to go towards saving, investing, or home ownership. For this reason, individuals with student debt are less satisfied with their financial situation than their non-debtor counterparts. Senator Warren sees this financial trend among college students when she says, “student loan debt is crushing them and limiting their opportunities” on her Facebook page. Millennials are so drained for resources because of compounding student debt, that they are forced to be protective with their assets and spend the majority of their income on their student loans. This leads to a lack of speculation by Millennials.

The lack of speculation by Millennials, whether it be on a home, a stock, or a new business, hurts not only the Millennial generation, but all generations. When Millennials are unable to build up their net worth, generations before and after them risk losing out on what could otherwise have been a benefit to the American economy. The United States economy benefits from addressing the student debt crisis just as much as it benefits Millennials. For this reason, it also benefits generations that came before Millennials and generations yet to come.

Student debt also leads to an increase in other types of household debt. In the same study, the Pew Research Center found that individuals with student debt are more likely to have other types of debt as well. Individuals who take out college loans have, on average, more vehicle and credit card debt. When individuals owe more overall debt, the United States economy is worse off. Every generation feels the negative impact when there are less financially stable households ready to spend and invest their money. Fixing the student loan crisis will not only help borrowers immediately struggling with debt, but will help the entire American economy.

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