4 reasons college costs & student debt are a major headwind to U.S. recovery
1 Contributing to unemployment and declining labor market participation
Due to the heavy financial burden college costs place on parents, many parents struggling to pay for their children’s education are left with less savings and more debt when they hit retirement age than they might otherwise have had. As a result, they’re forced to stay in the workforce longer, crowding out younger workers and making it harder for the younger generation to find jobs. In other words, the rising cost of college is one reason for the demographic-related headwinds facing the labor market today.
2 Stymieing savings
By some estimates, more than half of college students now borrow annually to cover the costs of education, and more than half of student loan borrowers still have outstanding debt balances into their 30s. This early-life debt means that the younger generation has less money to save–significant student debt lowers the average savings rate for young workers–and will likely have to work longer to cover future children’s college costs.
3 Suppressing home buying
Today, the first-time home buyer demographic is synonymous with student loan borrowers, posing a major headwind to recoveries in the lackluster housing market and in real estate-related employment. Thanks to high-interest student loan debt payments, along with disappointing employment opportunities and stagnant incomes, many young adults don’t have the savings required to make a down payment. Indeed, the proliferation of student loans in the early 2000s coincides with a decline in home ownership rates of 25 to 34 year olds, and the trend appears to be continuing. According to one recent report, rising student debt burdens reduced U.S. home sales by about 8% in 2014.
4 Worsening the class divide