Young people and potential career changers continue to be bombarded by data supporting higher education as a pathway to a higher quality of life. Indeed, according to the College Board, degree holders earn $22,000 per year more than non-degree holders, they have relatively lower unemployment rates and they are more likely to receive employee-provided health insurance. However, with the average student loan debt burden now topping $25,000, and given the still-lethargic labor market, with unemployment still in the high single-digits, those evaluating higher education as an option may need to carefully consider whether or not it is truly a means to a better end. Given news that the nation's student loan burden now exceeds $1 trillion, we take a look at how this large student loan debt burden could affect our economy in the coming years.

Expect Slower Payback of Other Consumer Debt
Consumers will likely take more time to pay down other debts such as credit cards and car loans. This is simply due to a consumer's need to direct available funds towards student loan debt rather than (potentially) higher interest rate credit card debt. By maintaining balances on other lines of credit, consumers are very likely racking up sizable interest payments while diverting funds away from savings, which in turn, may delay life events such as purchasing a home, marriage or having children.

Buying a House? Not Quite Yet
Those with outstanding student loan obligations may hold off on purchasing a home for several reasons, chief of which is that it may take longer to save up enough funds for a deposit, closing costs and other associated home buying expenses. Also, those who are unable to keep up with their student loan payments will likely run into difficulties qualifying for a mortgage, as student loan defaults would weigh heavily upon their credit score.

Marriage? Pay off Your Debt, First!
Many young people are holding off on tying the knot, and some market observers speculate that this phenomenon is partly explained by the rise in student loan debt. What's more, weddings tend to be pricey affairs, with an average cost in excess of $27,000. Therefore, those burdened by chunky student loan payments may very well delay marriage until they can afford it.

It's Expensive to Raise a Child
According to an analysis conducted by the USDA, children are expensive! The average annual cost for a child in a two-child, husband-wife family ranged from $8,330 to $9,450 for households with an income of less than $56,670 (for higher income households, expenses related to children was even higher). With these costs as context, many people with outstanding student loan balances may delay having children until they are better positioned to support raising a child.

The Bottom Line
Burgeoning student loan balances are worrisome, and likely to stifle consumption in the coming years, as consumers are unable to save or pay off other loans. Given the sizable average student loan balance of more than $25,000, those evaluating higher education as an option may want to explore other alternatives.

Related Articles
  1. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  2. Credit & Loans

    What's a Nonperforming Loan?

    A nonperforming loan is any borrowed sum where the borrower has failed to pay scheduled payments for at least 90 days.
  3. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  4. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  5. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  6. Credit & Loans

    Four Ways to Improve Education In America

    U.S. students place 27th in math and 20th in science out of 34 countries. The United States must reform its education system or harm future economic productivity and global trade competitiveness.
  7. Savings

    A Look at the Cost and Tax Treatment of College

    Is there more we can do to improve the affordability of post-secondary education? We take a look at how students and colleges are taxed today.
  8. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  9. Credit & Loans

    How Does a Lease Work?

    A lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
  10. Credit & Loans

    Fixing Your Credit Score: A Do It Yourself Guide

    Following these five steps can go a long way toward repairing a low score.
RELATED TERMS
  1. Debt/Equity Ratio

    1. A debt ratio used to measure a company's financial leverage. ...
  2. Whartonite

    A graduate of the Wharton School of Business at the University ...
  3. Personal Property Securities Register ...

    A written, public, online record of legal claims to personal ...
  4. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  5. Mini-Miranda Rights

    A statement a debt collector must use when contacting an individual ...
  6. Never Pay Strategy

    A colloquial term used to describe an individual who opens a ...
RELATED FAQS
  1. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  2. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  3. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  4. How can I take a loan from my 401(k)?

    The majority of employers offer eligible employees the opportunity to save for retirement in a qualified plan through paycheck ... Read Full Answer >>
  5. What are the best MBA programs for corporate finance?

    Opinions vary based on which publications you consult, but the best MBA programs for a career in corporate finance are at ... Read Full Answer >>
  6. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!