Student Loan Burden Could Be a Blow to Economic Recovery


Students with large loan burdens, because of the debt taken on for their educations, likely are not buyers of expensive items such as homes and cars. Perhaps all of their debt makes them less attractive candidates for loans. Or, they may believe their obligation will leave them bankrupt.

The results of a study by the New York Fed show what almost everyone with a high school education knows about student loan debt:

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances - making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers' post-schooling economic activity.

The population of these people is large enough that their troubles could be an economic headwind in the next several years, particularly because so many of them also have been unable to find jobs.

Filed under: 24/7 Wall St. Wire, Economy, Labor