The Impact of Student Loan Debt on the Economy and Borrowers

6/4/2015 8:22 AM

More and more research is focusing on how student loan debt has a widespread impact on many facets of the economy and consumers’ income and livelihood.


Student loan debt is approximately $1.2 trillion in the U.S. and is the subject of continued discussions among state and federal legislators, regulators such as the Consumer Financial Protection Bureau and groups throughout the country researching the impact of debt and the cost of education on consumers.

ACA International joined this discussion at a recent forum on student loan debt hosted by the CFPB in Milwaukee that focused on the conversation between regulators, student loan servicers and borrowers.

Richard George, president and CEO of ACA International member company Great Lakes Higher Education Guaranty Corporation in Madison, Wis., said during the forum that improvements to communication are needed, noting that there is a great deal of concern among loan servicers about how to provide relief to overburdened consumers with student loans, especially those who do not finish their education.

A recent survey from We Are Hope Inc., a nonprofit organization serving organizations and businesses in northeast Wisconsin, shows nearly half (49 percent) of the individuals who responded have more than $30,000 in student loans.

Seven percent of the survey respondents said they did not graduate from college, while four percent said they graduated with a certificate; four percent with a technical diploma; 13 percent with a two-year degree; 61 percent with a four-year degree; 21 percent with a master's degree; 6 percent with a doctorate; and five percent said other.

The survey “Be Smart About Education” was designed to identify how college debt is impacting individuals and families and how it may be impacting the overall economy.

“All of the data is out there, but we wanted to get the stories and how it actually impacted the decisions of individuals and what student debt was doing to hinder their ability to start their lives,” said Sandy Duckett, the CEO of We Are Hope, Inc. during a news conference to discuss the survey results.

Some of the most important responses in the survey focus on the impact of student debt on respondents' families as well as their futures, it states. They also provided information on how student loan debt impacts spending habits and respondents' ability to save or invest money for the future.

Key findings from We Are Hope include:

  • 20 percent of respondents indicated they cannot get a loan for other items, are unable to purchase a home, and student loan debt negatively impacts their credit.
  • 18 percent of individuals indicated they are living paycheck to paycheck, “drowning” in debt, and have a large debt load.
  • 13 percent indicated they have a lower quality of life and are unable to afford the extra things.
  • 12 percent indicated they are unable to save for their retirement or their children's education and feel less secure.

“Evaluating and making changes to the educational system is a huge undertaking. This report identifies the problem of college debt and provides information on how college debt impacts individuals and their families. When individuals lose their purchasing power, it can affect other industry sectors and should be a concern for all,” We Are Hope concluded in its report.

The Federal Reserve Board also recently released research on the impact of student loan debt on the economy and consumers as well as the value of their education relative to financial well-being and lifetime income.

According to the Fed's 2014 Survey of Household Economics and Decisionmaking: “Whether an individual attends college and completes his or her degree has long been understood to be a major determinant of lifetime income and financial well-being. However, as real college costs and the percentage of students borrowing to pay for education both continue to rise, the relationship between higher education and lifetime returns may become more complicated.”

Studentloanarticle.png Data Source: Federal Reserve Board 2014 Survey of Household Economics and Decisionmaking.

The survey found that, of the 15 percent of individuals who currently owe money on loans for their own education, 6 percent of that group also owes money for a spouse's education; and another six percent hold a debt acquired for a child or grandchild.   

The average combined balance of student loan debt for those people who report owing some kind of money, including for their education and a loan to help their spouse or child, is $35,657 and the median balance is $18,000. The average student loan just for an individual's education is $30,182 and the median $16,000. The average monthly payment is $681 and the median $200, according to the survey.

Fourteen percent of survey respondents said they have credit card debt from paying for education; five percent used a home equity loan for the costs and 11 percent said they have “some other non-student loan debt” to cover their education. Borrowers are more likely to use a credit card when paying for their own education, while the use of home equity loans is more common among those paying for a child's or grandchildren's education.

Additional findings from the Fed include:

  • Twenty-seven percent of respondents borrowed money to pay for expenses related to their own schooling, including 15 percent who currently have a loan payment and 11 percent who borrowed money that they have since repaid.
  • Among respondents who finished at least some education after high school, 39 percent took on at least some debt to pay for it and;
  • Among those who completed at least a bachelor's degree, 49 percent acquired at least some debt in the process.

The Fed also surveyed consumers to determine student loan payment status by demographic and education completion and the value of their higher education.

The full report on the survey is available here.

ACA International recently reported on the Fed's survey findings and how respondents pay for their education in other forms of borrowing than student loans.

ACA International is continuing to monitor activity related to student loan debt, including legislative proposals and regulation that could affect the credit and collection industry in the U.S. ACA also focuses on working with consumers to resolve their loans in a manageable way. Consumer resources are available on ACA's Ask Doctor Debt website.

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