Student Loan Crisis
Worried student calculating debt

Here’s How Student Loan Debt Is Affecting The Economy — And Your Future

You may wanna hold off on starting that business.

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On Aug. 24, President Joe Biden announced his plan to cancel up to $20,000 in debt for certain borrowers, but the prevalence of student loans in the United States is still huge. In fact, taking out hundreds of thousands of dollars in loans often a necessary step in obtaining a higher education — and as one of the most far-reaching forms of debt in the United States, it’s no surprise student debt affects people’s lives in some serious ways. But how, exactly, does student debt affect the economy, and more importantly, how does that affect you? Here’s what you need to know about how the consequences of student debt may be affecting you in ways you may not even realized.

There’s a pretty obvious answer: student loan debt doesn’t just affect people on an individual level, it affects the country’s entire economy. According to Forbes, around 43 million borrowers still owe more that $1.6 trillion in student loans, and that’s just from the federal student loan portfolio. Private student loans only make up approximately 7.89% of student debt as of 2022, per NerdWallet, but the amount owed still comes out to a mind-blowing $131 billion (which is way more money than the average American will ever make over their entire lifetime). “In 2012, student loan debt hit $1 trillion,” Sabrina Calazans, outreach coordinator at the nonprofit Student Debt Crisis Center, tells Elite Daily. “We've seen it skyrocket to something that's out of control,” she adds, highlighting how a several factors, such as predatory lending practices and increased college costs, have contributed to the crisis. “People are having to take out more money to be able to meet their needs.”

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With that much debt weighing down the spending power of millions of borrowers across the nation, it’s easy to see how being in the collective hole can affect the economy. Per April 2022 data from the Education Data Initiative (EDI), researchers found that “the effect student loan debt has on the economy is similar to that of a recession, reducing business growth and suppressing consumer spending.”

In real numbers, that translates to a huge decline in global gross domestic (GDP) product — according to research from the EDI, since the 1960s, the nation’s 10-year average GDP has declined by over 50%. Those are some huge consequences for the everyday college grad to reckon with, especially in a job market where the average college degree only offers a 14% return on investment, per EDI. Post-college circumstances can often get so dire for grads, that many end up applying for and receiving aid from government assistance programs. According to May 2021 data gathered by the United States Census Bureau, “roughly 3 million college graduates, including 1.6 million bachelor’s degree holders, received SNAP benefits.”

Calazans also points out that many people in low-income communities of color have to support their family members while making student loan payments. “Their salary is not just for them, but it's for their family as well,” she says. “So it becomes tougher to pay off the student loans while also having to take care of your family [and] keep a roof over your head.” By extension, this also makes it harder for people from these communities to invest in homes, businesses, and more.

However, the White House’s plan to cancel student debt should work to lighten the load. $10,000 of debt relief will be available to individuals earning $125,000 a year or less, or households earning $250,000 a year or less, along with an added $10,000 to those who received Pell grants. According to a facts sheet provided by the White House, the Biden administration estimates that around 90% of debt relief will go to households earning less than $75,000 a year, which should work to help out some of the country’s most underprivileged communities. Additionally, approximately 20 million borrowers across the country will have their debt obligations wiped completely clean, which means they can use that money toward buying homes, starting businesses, or supporting families.

Still, student loan debt remains a huge problem for millions of people across the United States — especially within Black and brown communities. According to, “Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates.” To even begin addressing these racial disparities within the student loan crisis, progressive groups such as the American Civil Liberties Union (ACLU) state that the federal government would have to forgive at least $50,000 in student debt.

“[Biden’s plan] will not end the student debt crisis, because there are still going to be borrowers who have $300,000 of student loan debt,” Calazans says. “There are still going to be borrowers who are going to struggle to make their payments. There's still the issue of college affordability going hand in hand with the student debt. There's still going to be the issue of predatory lending and keeping the loan servicing companies accountable for their mistakes, and for their lack of assistance to borrowers.”

In short, we have a long way to go. The United States’ huge private and federal student loan portfolio translates to reduced overall spending, inhibited the growth of small businesses, stifled housing markets, and stressed social security programs like SNAP, Medicaid, and unemployment. So, it’s safe to say that it’s incredibly detrimental to the economic prosperity of the average worker within the United States. At this point, pretty much everyone knows student loan debt is about as American as apple pie, but it still doles out devastating consequences to the U.S. economy.

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