Student Loan Debt is Impacting All Aspects of Life, From Home Ownership to Retirement
Posted By Donna Fuscaldo on December 28, 2015 at 9:29 am
There’s no question student loan debt has become a major problem for countless Americans around the country. After all, the debt level currently stands at a record of $1.3 trillion, with the average loan debt amount hovering around $33,000. Not to mention a default rate close to 12 percent. Not paying back student loans can have a disastrous impact on a person’s credit score and shouldn’t be an option. But paying the loans back each month is also impacting other aspects of borrowers’ lives. From homeownership to retirement savings, here’s a look at how the record student loan debt is affecting other parts of graduates’ personal and financial lives.
Homeownership among college graduates not increasing
The American dream for many people is to go to college, earn a degree, start working and eventually become a homeowner. But a funny thing happened along the way for countless students. Some weren’t able to complete school, dropping out, but still saddled with large student loan bills. Among the ones who did complete their degree, unless they majored in areas that are sought after, finding a good-paying job was and still is hard to come by. As a result, instead of saving for a home down payment or covering a monthly mortgage, graduates are putting off becoming homeowners as they chip away at their student loan debt.
Consider this: According to an October report by Freddie Mac, the government-backed mortgage lender, while many market analysts had expected the homeownership rate to rebound as millennials enter the market, that has not happened. Instead, the rate of homeownership continues to decline, even among those under the age of 35, considered traditional first-time buyers. While Freddie Mac wouldn’t come out and blame the student loan debt situation outright, it did say it’s not too far of a leap to make.
“College attendance often increases during recessions, as limited job opportunities reduce the opportunity cost of education. During the Great Recession, many high school graduates who might not otherwise have gone to college decided to invest in a college education in hopes of enjoying higher wages once the recession ended,” said Freddie Mac. “These decisions generated explosive growth in student debt during the Great Recession. The overhang of this debt may be making it harder for millennials to accumulate down payments and to qualify for a mortgage.”
New car purchases not being driven by college graduates
Buying a new car in and of itself isn’t a barometer of a person’s wealth but many college graduates who are financially sound do opt to get a new ride, whether that’s for commuting or for weekend errands and entertainment. But with the average student loan debt per person standing at around $33,000, many graduates are foregoing the new car, at least for now. According to Student Loan Hero’s 2015 Student Loan Burden Report, 47 percent of college-educated Americans with student loans have put off purchasing a car. The survey also found that 44 percent have postponed traveling the world, while 25 percent have delayed moving out of their parent’s house.
Saving for retirement isn’t even an option
When it comes to student loan debt, the more a graduate is stuck with the less likely they are to save for retirement, despite the likelihood that retirement will easily last twenty plus years. In fact, LIMRA Secure Retirement Institute, the research group focused on retirement, said millennials who start their careers with $30,000 in student loan debt could end up with $325,000 less at retirement compared to their peers who don’t have debt. What’s more, LIMRA found millennials who have student loan debt are saving less than their debt-free counterparts in company-sponsored retirement plans such as a 401(K).
In fact, LIMRA says millennials without student loan debt are 60 percent more likely to take full advantage of an employer match program than those paying off their student loans. Often companies will match a percentage of the amount an employee saves in a 401 (K) plan, which is essentially free money.
Young entrepreneurs aren’t the ones with student loan debt
One of the engines of the economy that has always kept it humming along and provided an opportunity for people to better themselves is entrepreneurship. After all, small businesses make up the lion’s share of employment in this country and are responsible for the fortunes of countless Americans. But the record student loan debt is changing the face of that, at least according to Mitchell E. Daniels, the president of Purdue University, who spelt it out in a Wall Street Journal op-ed piece earlier this year. According to Daniels, over the last ten years, the percentage of businesses started by a person under the age of 34 fell to 22.7 percent from 26.4 percent. What’s more, Purdue found 26 percent of students who left college without any debt started one or more businesses. Only 16 percent of students with debt of $40,000 or more started a business.