Personal Finance

How student debt came to define people's lives

Key Points
  • Student loans have become a defining feature of American life.
  • Over the past decade, these loans have made it harder for people to purchase houses, start businesses and families, save or invest.
  • The debt has also become a top-tier issue in the 2020 presidential election.
Monthly student loan payments can dictate when people have children and how much they'll retire with.
Pat Greenhouse | Boston Globe | Getty Images

Student loans have become a defining feature of American life.

It was 10 years ago that education debt eclipsed credit card debt. The next year, in 2011, it exceeded auto debt.

As we enter a new decade, outstanding student debt trails only mortgages and is expected to top $2 trillion in the next couple of years.

Around 43 million people in the U.S. are in debt for their education. Each year, 70% of college graduates start off their lives in the red. And their average balance is around $30,000, up from $10,000 in the early 1990s.

Wages haven't kept up. Starting salaries for new college graduates have grown less than 1% over the past two years, remaining at around $50,000.

As a result, repayment has proved difficult for many people. Nearly 30% of borrowers are in delinquency or default.

Six-figure balances are becoming more common. Seattle-area resident Elisha Bokman has been out of school for eight years and still owes nearly $500,000 for her doctorate degree in naturopathic medicine and master's in acupuncture from Bastyr University.

"It really effects the remainder of your life," Bokman said.

Indeed, over the past decade, these loans have made it harder for people to purchase houses, start businesses and families, save or invest.

Changes might be coming. Two front runners for the Democratic presidential nomination – Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass – are proposing to forgive most or all student debt.

Avoid this mistake when consolidating your student loan debt
Avoid this mistake when consolidating your student loan debt

Former Trump Administration official A. Wayne Johnson, who used to oversee the country's outstanding student debt, made headlines earlier this year when he proposed forgiving $50,000 for all borrowers, about $925 billion.

"It's the first Republican support for widespread student loan forgiveness," said Mark Kantrowitz, a higher education expert. "That makes it a bipartisan issue."

It's little surprise politicians have turned their attention to the topic: More than half of Americans say student debt is "a major problem" for the country, according to a Politico/Morning Consult poll.

Here are some of the ways the loans have come to shape our lives over the last decade.

Families postponed

The more student debt a person has, the more likely they are to say they've delayed getting married, according to an analysis by Kantrowitz.

His research found that roughly 1 in 5 people who owed $25,000 or less said they had postponed marriage. Among borrowers with balances over $100,000, that ratio jumped to 1 in 3.

Getty | Michael H.

Almost 40% of borrowers with balances over $100,000 said their debt had caused them to put off having children, Kantrowitz found. Other research backs up Kantrowitz's findings.

Karen Teague, a 29-year-old from New Park, Pennsylvania, owes $25,000.

"Kids are expensive, and some weeks I can barely afford to feed myself," Teague told Bustle last year.

Homeownership rates down among young people

Researchers at the Urban Institute found that if a person's education debt went from $50,000 to $100,000, their chance of homeownership will decline by 15 percentage points.

"Student loan debt holders do want to own a home; that's part of their American dream," said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors. "It's just really hard to get there right now."

Large balances can make it hard to qualify for a mortgage. Many others find their monthly bills prevent them from saving for a down payment.

Stephanie Pennycuff graduated from Indiana University-Purdue University Indianapolis with $43,000 in student debt.

She works at a nonprofit, helping formerly incarcerated people transition back into their communities. She earns around $30,000 a year; her monthly student loan payment is $450.

That math has made saving nearly impossible.

"Pretty much one paycheck a month goes to loans," Pennycuff, 28, said. "Every time I manage to save up a couple of thousand dollars, something happens and it's immediately drained back to nothing.

"I can't put down any sort of payment on a home."

It's harder to start a business

A person with $30,000 in student debt is more than 10% less likely to start a business than a person who graduated debt-free, according to calculations by Karthik Krishnan, an associate professor of finance at Northeastern University who researches student debt.

Businesses started by people with student debt also don't grow as fast as those headed by people without it, Krishnan finds.

"It's going to be a big problem as we get to the next decade," Krishnan said. "We're going to see a gradual deterioration in outcomes in economic mobility and start-up activity."

Student debt could hold back economic growth, Fed chief says
Student debt could hold back economic growth, Fed chief says

Small businesses are especially at risk, according to a study by researchers at the Federal Reserve Bank of Philadelphia and Pennsylvania State.

As student debt has mushroomed, the number of businesses with one to four employees dropped by 14% between 2000 and 2010, the researchers found.

Smaller savings

Monthly student loan payments often force people to sacrifice saving for their retirement.

By the time college graduates turn 30, those without education debt are predicted to have double the amount saved for retirement as those with the debt, according to the Center for Retirement Research at Boston College.

The Consumer Financial Protection Bureau has come out with similar findings.

Some hit harder (and for longer) than others

Two-thirds of the country's outstanding student debt is carried by women.

And while the average white student loan borrower owes around $30,000, the average black borrower owes closer to $34,000. White borrowers pay down their education debt at a rate of 10% a year, compared with 4% for black borrowers.

And it's not just millennials struggling with college loans.

In 2018, Americans over the age of 50 owed more than $260 billion in student loans, up from $36 billion in 2004, according to the Federal Reserve.

Stephanie Galante still owes around $40,000 and soon she'll be 80.

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