You didn't have to own a home to feel the effects of the housing crash. The student loan problem could have similar ripple effects.
Student loan debt has topped $1 trillion as two-thirds of students graduate with debt. There are nearly 37 million student loan borrowers in the United States currently repaying a student loan, according to the Fed.
It's not just the young 20-something crowd that's burdened with the debt. Over 60% of that the $1 trillion is held by those over 30-years-old, 15% is held by those over 50.
"This issue is really starting to affect the economy. Borrowers can't purchase a home because they can't make the down payment, for example," says Anne Johnson, Director of Campus Progress. Others are making their career decisions based on their debt obligations. For instance, borrowers with loads of debt are not entering jobs in the the public sector due to high loan payments.
Student loan experts hosted a call on Tuesday to discuss the growing problem of student debt and the implications on the economy.
The most pressing issue right now is an incredibly rise in the interest rate on so-called Stafford loans. Such loans are subsidized by the government but rates are set to double from their current 3.4% to 6.8% by the end of the week if Congress fails to act. ProgessNow says more than 7 million college students and families who rely on these loans and would be hit with $1,000 hike in college costs if rates double.
Senator Tom Harkin, an Iowa Democrat, said on Monday it's unlikely much will be done to prevent the hike before July 1.
The potential hike in Stafford loan rates is "one small battle in the overall war" in the student loan space, according to Robert Applebaum, cofounder of StudentDebtCrisis.org.
There are three types of student loan debt: federally backed debt which amounts to $850 billion, private loans provided by companies like Sallie Mae which accounts for $150 billion to $200 billion, and other debt in the from of credit card, home equity loans or second mortgages.
Research from ProgressNow found that the average time it takes to pay off student debt is twenty years. Students with bachelors degrees can expect to repay their loans in 19.7 years with an average monthly payment of $499, and those with graduate degrees 23 years with an average monthly payment of $653.
The bigger picture is that theses borrowers are delaying major life decisions like buying a home or car as a result of their student loans. And while much has already been said about the difficulty of getting student loans forgiven in bankruptcy there are also limitations on refinancing student debt. Johnson says refinancing Stafford loans at a rate of 5% would save borrowers $14 billion in interest payments annually.
The rate of home ownership is 36% less among those currently repaying student debt.
In every household income category, individuals who have already paid off a student loan were more likely to purchase a new vehicle (as opposed to purchasing a used vehicle) during the last ten years. There's over $6 billion lost annually in new car purchasing power that's directly tied to student loan debt, says ProgressNow's Scott Ross.
The debt is such a burden to some that about one third of milliennials say they regret going to college.
"We have to ask: 'What are we losing as these generations are borrowers is paying off student loans rather than living the American Dream?" Ross says.
