GOOD READS

Student Loans Now Exceed $1 Trillion

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.



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