The Impact of Student Loan Debt

Photo Credit: Flickr/Woodley Wonder Works

According to the Institute of International Finance (IIF), a global association financial institutions, college tuition is increasing ten-times as fast as food costs, the price of housing, and healthcare. The rise in the price of higher education has longer lasting implications than the personal debt burden of college students and graduates. Traditionally, college graduates were the majority of those who are first-time home buyers. With the high debt and the decrease in wages (by ten percent), accessing mortgages is made difficult.

The long term impact of less and less first-time home buyers is on the gross domestic product (GDP) of the United States. Home sales are part of consumer spending which, in turn, is a factored into the GDP figures. Gains in the GDP mean economic growth; the inability for the country’s largest group of potential home buyers to actually purchase home could indicate a decline in the economy.

A recent study from Rutgers University shows that large purchases are being delayed by college students graduating with debt. The Federal Reserve backs up this finding with their own numbers: just nine percent of this demographic were approved for mortgages.

While almost twenty percent of the households in the United States have outstanding student debt, there are still ways in which graduates and prospective home buyers can both manage that debt and to get a mortgage for their first home. There are a variety of debt solutions and mortgage solutions available, including for buyers that have no to poor credit history.

It remains to be seen if the theoretical long-term effects of student debt and decreased first-time home ownership will affect our national GDP, but changes to the way in which education is financed is an important first step toward continued economic growth.