5 Hidden Financial and Social Impacts of America’s Student Loan Debt Problem

Holly Johnson

Updated On: August 15, 2023  •  5 Minute Read

Financial Tips, Student/Financial Aid

While there are many shocking statistics regarding American problems with student debt, one figure stands out from them all. As of early 2023, Americans owe over $1.77 trillion dollars toward student loans. No, that is not a typo!

This record-breaking sum is spread among nearly 44 million borrowers according to Education Data Initiative, yet the individual burden is still astronomical. Among the Class of 2022, they note, college students with debt started their adult lives owing $37,717 on average.

5 Impacts of Student Loan Debt

What does this mean for young people and other college borrowers? Having to service that debt every month means less money in each borrower’s pocket for sure, but many of the other impacts of massive student debt are deeply hidden in the fabric of our society. Having less pocket change is one thing, but the impact of less money in the hands of young people may be more far-reaching than people realize.

Here are some of the ways American debt woes could be hurting us all:

Delayed Home Ownership

A 2019 analysis of Federal Reserve numbers by Fortune Magazine painted a grim picture when it comes to the future of homeownership. Only 36% of households with a head between ages 24 and 32 owned a home in 2014 — a figure that’s down 45% from 2015, noted Fortune. While these are older statistics, the burden of student debt still make owning a home in 2023 difficult.

This comes at a time when student loan debt rose dramatically, which is why it’s estimated that around 20% of the decline in homeownership among young people may be caused by rising student loan debt.

Not owning a home isn’t the end of the world, but for young people chasing the American Dream, being unable to afford a mortgage can be a true hardship. Not only is it harder to save up a down payment for a home with housing prices on the rise, but rising rents can cause problems on their own. This can make it even more difficult for young people to buy a home later on.

Irrational Fear of Credit

Several studies from Bankrate and the Fed have shown that, by and large, millennials aren’t embracing credit cards the same way previous generations have. Only one out of three millennials carried a credit card in 2016 according to a Bankrate survey. The rest stick to prepaid debit cards, debit cards connected to a checking account, or cash, the experts say.

While shunning credit may help some young people avoid adding more debt to their plates, there are downsides that come with avoiding credit as well. For starters, it’s difficult to build credit you may need later in life when you’re not using different types of credit such as credit cards or installment loans. Without a solid credit score and long history, young people may wind up failing to qualify for a home loan or car loan later down the line — or being able to qualify but with a higher interest rate and fees.

Lower Net Worth

A 2018 analysis of Federal Reserve data from Magnify Money included some startling statistics on student loans and net worth — a figure that is determined by subtracting your liabilities from your assets. According to the data, millennials with student loans reported a net worth that was only 25% of those without student loans.

Since net worth takes into account both your assets and how much you owe on them, many experts consider it the ultimate measure of wealth. This is bad news for young people who are starting out in the red; with tens of thousands of dollars in student loan debt, it could take them years or even decades to catch up.

Delayed Retirement Savings

Speaking of catching up, young people with student loans may need to work longer or save more later in life to accumulate enough savings and investments to retire.

A 2019 report from Bankrate showed that, among young people with student loans, 34 percent said they were delaying building up emergency savings and another 29 percent are putting off saving for retirement.

With student loans to service for a decade or more, it only makes sense that retirement savings may need to wait — or be dramatically curtailed until all student loans are paid off.

Delaying Major Purchases and Milestones

The same Bankrate survey showed that young people were delaying other important purchases and goals until they made more progress toward their student loans. Almost a third — 27 percent — were delaying paying off other types of debt, including credit cards. Another 23 percent were delaying buying or leasing a car and 10 percent were delaying having children.

Another 9 percent were waiting to get married until their student loans were under control. Imagine the cumulative effect of all these delayed purchases and milestones — and all so young people can repay tens of thousands in student loans plus interest to boot.

The Bottom Line

If you are stuck with student loans that may take decades to pay off, it doesn’t have to be all doom and gloom. With a solid plan in place, you may be able to tackle your debts faster so you can move on with your life. What if you could boost your income with a side hustle and pay off your debt astronomically faster, taking years off your repayment timeline in the process?

At the very least, you may be able to reconfigure your loans so your monthly payments are easier to handle. With income-based repayment plans, for example, those who qualify can pay a percentage of their discretionary income for up to 25 years then have their loans forgiven in the end.

You can also choose an extended repayment plan that lasts up to 30 years, thus lowering your monthly payment in the process. Other loan forgiveness programs such as Public Service Loan Forgiveness (PSLF) and special loan forgiveness for teachers and other professionals are also available — at least for now.

The bottom line: The future you want is out there, even if it feels like your student loans will stand in the way forever. Find a way to pay off your loans faster — or make your payments more manageable — and you can have the life you want sooner rather than later.