There is $1.1 trillion of outstanding student loans in the US economy. Only ten years ago, that number was $300 billion. Skeptics try to mitigate the issue of student debt by comparing it to the amount of mortgages which is over $8 trillion. However, student loans are radically different from mortgages. People of all ages can take out a mortgage and while anyone can attend a university, the vast majority of that $1.1 trillion is concentrated in 20 and 30 year olds. Another important caveat of student loans is that they do not disappear; they cannot be cleared by bankruptcy.
By starting their adult lives with tens of thousands of dollars in debt, young adults have a slow start when it comes to entering the economy. They cannot contribute as much in terms of buying cars and homes because of the debt they have incurred by attending college. Prior to the recession, 33% of young adults also had mortgages. That number has dropped down to just 22%. Similarly, before the recession, nearly 38% of 25 year olds with student loans also took out car loans. Current data show that number had decreased to 31%.
A recent Pew study looked at wealth accumulation across college educated and non-college educated adults with and without student loans. As indicated by the data, the group that was the worst off was composed of young adults who had accrued student loans but never finished college. Surprisingly, the people who graduated college with college loans had less wealth accumulation by the time they hit 40 than people with neither a degree nor student debt. It is important to note that college graduates normally outpace high school graduates in earnings when looking at the long run.
The rising levels of student debt suggest that young adults have trouble initiating their “grown-up” life. Young adults are more likely to live at home for a few years after graduating and less likely to own a car. The effects of student loans are still hurting people even at the age of 40. This leads teenagers on the brink of graduating high school ask the even more pertinent question: Is college worth it?