Go to Top

How Does Student Loan Debt Affect the Economy?

Remember the 2008 financial crisis?

 

You know, the one that economists say is the worst since the great depression.

 

The crisis began due to issues in the subprime mortgage sector. These high-risk loans led to a large number of new homebuyers, which drove up housing prices, which led to people borrowing against their homes and eventually, the housing “bubble” would burst.

 

As you know, this led to the downfall of some financial institutions and the stock market, people lost their homes and there was high unemployment.

 

Which leads us to student loans. Experts say that the next “bubble” to burst could be the student loan debt issue the country is currently facing. And experts fear that the student loan debt bubble could lead to the country’s next financial windfall.

 

With rising education costs facing the country, more and more American citizens are getting into debt. According to the Financial Times, the amount of student loan debt in the United States has grown by 170 percent in the past 10 years. The Times also mentions that America has 44 million people borrowing student loans, with 8 million of them currently in default. Default is when a borrower fails to repay the loan after a certain amount of days.

 

The question is, what does this mean for the future, and how does the student loan debt in the U.S. affect the economy?

 

One factor with student loan debt and the economy is it’s weighing down Americans and delaying them from buying homes, getting married and starting small businesses, according to Bloomberg.

 

So, does this mean the student loan problem in the country will lead to the next big economic recession, similar to what happened with the housing crisis of 2008? According to the Chicago Tribune, not necessarily. When the real estate market collapsed, the mortgage debt in the country was nearly two thirds of the gross domestic product. Student loan debt, on the other hand, is less than 10 percent of the GDP. The Tribune also mentions that median student loan debt is $13,000, compared to an average mortgage debt of $300,000 in 2007.

 

Therefore, while student loan debt and the economy is certainly an issue in our country today, it doesn’t necessarily mean we’re heading towards another 2008 crisis.

 

If you are currently in student loan debt,our  certified student loan counselors will help you review your financial situation and ensure your payments remain affordable, and minimize their impact on your future.