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A Macro Look at Student Loan Debt in America

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Most of us know someone burdened with student debt — whether it’s ourselves, a family member, a colleague, a friend or all of the above.

There’s no denying a college degree can help graduates increase their lifetime earning potential, though it’s not a guarantee. Meanwhile, the cost of college has risen more than 25 percent over the course of the past decade (25.3 percent for private schools and 29.8 percent at public universities). The cost of living in general has also risen, which means post-secondary students often find themselves having to pay more for housing, food, clothing and transportation over the course of their education. Cuts to spending in higher education have also placed more of the burden on students.

Let’s take a macro look at student loan debt in America today and its financial implications for our country.

How Student Loan Debt Can Affect Every Generation

A common misconception about student debt is it only affects those who had to borrow money to fund their education. As Andrew Housser, a co-founder of Freedom Debt Relief, points out, a recent survey of college attendees and their parents found 40 percent of parents believe they will have to retire later in life due to the staggering cost of their child’s education.

While three out of five students who had to borrow money to pay for college are struggling to save, one-third of parents also said they’re unable to build up savings, due to the responsibility of assisting their children with college-related costs.

In other words, debt is more than just a problem for millennial and Gen Z students in college or who have graduated sometime within the last decade. It also negatively affects the financial stability of their Gen X and Baby Boomer parents.

Members of younger and older generations alike are struggling to build their emergency funds, secure their retirements and save the money they’ll need to achieve various life milestones. Further, many students and parents alike are experiencing negative mental health effects as a result of this debt — among them, stress and lost sleep.

The takeaway? It makes more sense to think of debt as a “societal issue” rather than just a financial one. Only then can we come up with individual and systemic solutions to help Americans shore up their financial and mental health.

How Student Loan Debt Affects the Economy

This record-high $1.6 trillion in student debt affects the country as a whole, too. Here’s how one senior analyst breaks down this effect for CNBC: When individuals are beholden to high levels of student debt, it “crowds out” their access to other forms of credit. This, in turn, delays their ability to buy a home or start a business — which are “important drivers of economic growth and wealth creation” for the country as a whole.

This is why many experts believe forgiving some, or all student debt would go a long way toward stimulating the economy. When individuals are saddled with massive amounts of debt, they have little choice but to delay life milestones and tighten their spending. When enough people find themselves in this situation, nationwide consumption goes down and certain indicators of financial strength — like the number of people buying homes, starting businesses or having children — start to fall.

The future of student loans is uncertain. As it stands, the government has enacted a six-month suspension of federal student loan payments in the wake of COVID-19. But many experts believe we’ll need more drastic, and lasting, measures to help graduates, their families and the economy as a whole.