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Negative Economic Effects of Student Loan Debt on the US Economy

Laura Fields | May 23, 2024

Edited by Hannah Locklear

Summary: Student loan debt has increased substantially in the US, and with it, economic problems have arisen, including lack of retirement savings, reduced spending, delayed marriage and child rearing, etc. If you're struggling with student loan debt, you can resolve your debts with the help of SoloSettle.

Student loan debt is necessary for some people to gain a higher education, but it comes with a hefty personal price tag and potential negative effects on the economy.

In this article, we’ll explore the effects of student debt on the US economy, the reasons for student loan debt, and the positive impact of avoiding it altogether.

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Student loan debt has increased in the United States

At the end of 2022, the Federal Reserve reported $1.76 trillion in private and federal student loan debt in the United States. This number has steadily increased over the last ten years since 2011. Here are some other interesting statistics regarding US student debt:

  • US students take out $31,410 in student loans, on average, to get a bachelor’s degree.
  • Amongst the total student debt, around 92% is federally funded, and 8% is privately funded.
  • 55% of students who go to public four-year institutions find themselves in a college debt crisis.

In response to the rising student debt numbers, the Biden Administration announced a plan to cancel or reduce federal student loan debt balances beginning in August of 2022. Even with this forgiveness plan in place, the economic effects of student debt are still evident.

Student loan debt impacts the US economy

Let’s have a review of some of the impacts that are created due to student loan on the US economy:

  • Student debt prevents people from saving for retirement.
  • People who have student debt are more likely to reduce spending and avoid big purchases, such as a car or home.
  • Some studies suggest that student debt prevents or delays important life events such as getting married, having children and retirement.
  • Female students and students of color are most affected by student loan debt, which has historically affected overall educational equality.

These are just a few of the negative effects of student loan debt on the economy. But more importantly, student loan debt negatively affects individuals. It can cause great stress, prevent and delay important life milestones, and even scare some students away from pursuing a higher education in the first place.

The average student loan debt amount varies by state

The table below outlines the average student loan debt in each state throughout the US.

Average Student Loan Debt by US State
State Average loan balance
Alabama $35,848.13
Alaska $34,055.73
Arizona $34,693.64
Arkansas $32,188.84
California $36,755.80
Colorado $35,932.11
Connecticut $34,713.76
Delaware $36,135.11
District of Columbia $54,708.52
Florida $37,709.72
Georgia $40,268.87
Hawaii $36,238
Idaho $32,228
Illinois $37,233
Indiana $31,483
Iowa $29,350
Kansas $31,502
Kentucky $31,685.24
Louisiana $33,376.54
Maine $32,679.74
Maryland $42,350.91
Massachusetts $33,710.38
Michigan $35,253.08
Minnesota $32,513.98
Mississippi $35,381.31
Missouri $34,412.96
Montana $32,414.91
Nebraska $30,978.93
Nevada $33,663.96
New Hampshire $33,119.66
New Jersey $35,202.31
New Mexico $33,550.79
New York $37,196.72
North Carolina $36,632.59
North Dakota $27,874.56
Ohio $33,490.59
Oklahoma $31,011.14
Oregon $36,230.49
Other $44,150.11
Pennsylvania $34,535.56
Puerto Rico $29,480.74
Rhode Island $31,779.66
South Carolina $36,729.04
South Dakota $29,798.42
Tennessee $35,431.18
Texas $32,285.33
Utah $31,861.93
Vermont $37,037.04
Virginia $38,251.37
Washington $35,223.26
West Virginia $31,121.28
Wisconsin $30,777.92
Wyoming $30,360.53
Forbes

This table shows the average loan balance is the highest in the District of Columbia, Maryland, Georgia, Florida, and Illinois. On the other hand, the five states with the lowest average student debt are Kentucky, Kansas, Indiana, Nebraska, and Iowa.

The average student loan debt amount also varies by age

The table below shows how different age groups are affected by student loan debt.

Average Student Loan Debt by Age in the US
Age Group Amount Owed Number of Borrowers
24 or below $110 billion 7.6 million
25 to 34 $500 billion 14.9 million
35 to 49 $622 billion 14.4 million
50 to 61 $282 billion 6.4 million
62 and older $98 billion 2.4 million
Forbes

As the table illustrates, people who are 35 to 49 years in age account for the highest number of student debt with 14.4 million borrowers owing $622 million. Therefore, according to this data, middle-aged people are mostly affected by student loan debt.

Why are US students in debt?

Most students take out a loan to gain an education which opens the gateway to better employment opportunities.

As such, there are several reasons why US students and graduates have accumulated so much debt in pursuit of higher education. Here are a few reasons why US students are in debt:

  • One of the prime factors is the rising tuition fees and overall expenses. As a result, US students need to take on quite a lot of debt.
  • Lack of job availability is another reason. As there are limited employment opportunities for students, they can’t get a proper job which will lead them to take a loan.
  • Only a handful of students get scholarships, and oftentimes those scholarships are rewards to the ones who don’t need financial support.
  • Over the years, there has been a significant increase in the number of students pursuing higher education. This higher demand has contributed to an increase in student debt as more individuals require financial assistance to afford college.

As a developed country, the US

Avoiding student loans has many benefits

While getting a degree is beneficial, consider the cost. In an ideal situation, you’d want to avoid student debt while also pursuing higher education. Doing so can have the following positive outcomes:

  • If you don’t take a student loan, you won’t have to pay an unnecessary amount of interest.
  • You won’t have to deal with the years of stress that come with paying off student loans.
  • You will have a better quality of life without the burden of regularly paying back your loans.
  • When you avoid student debt, you can do your part to improve the economy as a whole.

That being said, we realize that some people must take out a loan in order to attend college. There are still smart ways to stay on top of your finances while also paying back your student debt.

Settle your student debt with SoloSettle

If you’ve fallen behind on your student loan payments, there is a chance you’ll be contacted by debt collectors. If you ignore their calls, you might find yourself tangled up in a debt lawsuit. If you know the debt is valid, debt settlement may be a good option to help you get back on track.

Debt settlement involves working with creditors, lenders, and debt collectors to negotiate a lump-sum payment, and sometimes a payment plan, that is less than the original debt amount to satisfy the obligation once and for all.

SoloSettle, powered by SoloSuit, makes debt settlement simple. Our software helps you send and receive settlement offers until you reach an agreement with your creditor. SoloSettle also helps you manage your debt settlement agreement documentation and transfers your settlement payment so you can keep your financial information safe from sketchy debt collectors.

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