The Morning Economic Report
5:30 am
Mon June 23, 2014

Impact of Student Debt - 6/23/14

It is simply impossible to ignore the impact of student debt on the U.S. economy.  Before the recession, many state colleges, which educate about 70 percent of the nation’s students, reacted to state budget cuts by raising tuition.  Tuitions expanded even more quickly at many private colleges and universities.  Left with few good options, students and their families financed increasingly expensive college educations by relying more heavily upon student loans.

According to the New York Times citing the federal Consumer Financial Protection Bureau, student debt has doubled since 2007 and now stands at roughly $1.2 trillion. A sluggish economic recovery has made it that much more difficult to pay back these loans and about 7 million of the nation’s 40 million student loan borrowers are in default.  But that’s hardly where the economic story ends.  Many students are paying back their loans, but just barely and only because they are putting off car purchases, apartment rentals or home purchases. 

Not coincidentally, the owner-occupied housing market has been stalling of late.  Over the past 30 years, first time home buyers have represented about 40 percent of all sales.  But over the past year, that proportion has stood at around 30 percent.