Student Loans and its Impact on Economy

Statistics reveal that as far as household debt is concerned, student loans rank second only after mortgage in United States with USD$1.4 trillion. It has also been observed that as of 2018, the average initial salary for a college graduate is USD$50,390, which is a little higher by 2.8% as compared to 2017.

It was stated in the Consumer Price Index report that was released in July in the current fiscal year that rate of inflation increased by 2.9% as compared to the last one year.

In this write-up, let us find out how the student loan market or industry impacts the economy of any country.

Looking back at the causes leading to mortgage crisis

The penultimate months that led to the subprime mortgage crisis, it was found that more and more households banked heavily upon their home equity in order to access quick cash. It was during this time and the period following the subprime mortgage crisis, when people availed payday loans to overcome their sudden financial crunch.

Also, one of the main reasons for tapping into their home equity was to fund education for the children. However, when the housing bubble burst, the provision of using the home equity was no longer available as an avenue for funding education.

Also, the period through 2007 and 2017, it was observed that the Consumer Price Index escalated by 21%. It was also during this period that these fees for college education and tuition increased by as much as 63%, which was 51% for school fees and the cost of textbooks rose to 88%.

In order to find out more about business and trends, click here. It was only after the avenues of home equity stopped that more and more households turned to students loans. In fact, the households that were not able to access student loans also tried to avail payday loans from direct lenders to fund education of their children.

The scenario explained above is responsible to a great extent why student loans debt has increased by leaps and bounds over the last decade. Way back in 2007, the student loan debt was recorded as USD$545 billion.

Records suggest that the average rent in United States was USD$1,408 in the month of July, which is an increase of 2.8% as compared to the previous year. Also, it has been observed that rent growth is no longer outpacing increase in salaries.

Generally speaking, the average payment towards student loan is USD$350. Add to it the rent cost and cost of your grocery stuff and you will find yourself hitting more than USD$2000 a month when your app finally calculates it for you.

Interestingly, it was found that 22.5% of all the households in United States had student debt with increase in 45% for individuals aged between 18 and 35, which can also be calculated as USD$34,000 on an average, which was an increase of 18.8% as compared to what was in 2001. As such, it was found that in order to shell out a down payment on home even if it is of 20%, a household has to save for more than 6 years.

Return on investment in degree course

The return on investment for a 4-year degree course is not as “straightforward” as it used be when it was easier for the students that were high school graduates around 1987-88. What matters is the quality of life or the standard of life you are used to leading against the burden of financial obligation that you are capable of taking, and most importantly, how much of a compromise can you make on the quality of life.