David Dulberg
October 2018

Bigger Than Avocado Toast: Student Loan Debt Drags Down the Economy

By now, you know the major plot points about student loan debt and the U.S. economy:

  • Getting a degree gives workers better career and earning potential over the course of a lifetime, especially as technology shifts workforce needs.
  • With the cost of college rising, most students have to borrow in order to pay for their education.
  • From a broader perspective, this has resulted in the student loan debt crisis. More than 44 million Americans owe more than $1.52 trillion.
  • For individuals this means delaying life milestones, such as getting married, having children, buying a home, and saving for retirement.

Though college costs have been rising faster than inflation for decades, the challenge of financing higher education became a crisis after the Great Recession. Since 2008, student loan debt surpassed both credit card debt and auto loans. It is now the second biggest pile of debt behind mortgage loans.

Students graduating in the years just before or after the recession are most at risk of economic disadvantages. And though there is a possibility that conditions might change and they can catch up, for now it remains grim. According to a recent report, Student Loans and Homeownership:

“A $1,000 increase in student loan debt lowers the homeownership rate by about 1.5 percentage points for public four-year college-goers during their mid-20s, equivalent to an average delay of 2.5 months in attaining homeownership.”

Since students are currently leaving school with $37,000 in debt, that works out to a delay of about 7.7 years. For individuals, this shifts priorities and impacts all other areas of long term financial stability. Some might say that it is the fault of the borrowers—no one forced them to take out thousands of dollars in loans, after all. They advocate for the status quo, or at least for borrowers to pull themselves up the by their own bootstraps. We had to do it, they seem to say, now it’s your turn. Lay off the avocado toast, they suggest.

Unfortunately, this narrow moral argument against broader solutions may run into far more wide-ranging economic realities.

First off, this is not strictly a millennial problem. More than 15 percent of those ages 55–64 responding to a National Financial Capability Survey carried student loan debt for themselves or their loved ones. The government garnished benefits from three percent of social security recipients due to non-payment of student loan debt.

In addition, student responsibility has increased as state and institutional responsibility has decreased. A recent report by the Center on Budget and Policy Priorities outlined the link between lower state funding and rises in tuition since the recession. Colleges must also shoulder some of the responsibility. By raising tuition with limited exposure to, or fallout from, the stress of student loan debt, they have been slow to bring solutions to the issue. Says Douglas Webber:

Right now, there is, frankly, very little accountability that schools have; they practically have no skin in the game.”

Earlier this year, the extremely reserved Federal Reserve Chairman Jerome Powell spoke about the potential of student loan debt to drag down the economy. “As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth,” he said. These words may seem mild until you consider who they are from. Chairs of the Federal Reserve are extremely loathe to acknowledge challenges. Their whispers are roars.

Though economic conditions can change, and there will be a transfer of some baby boomer wealth from inheritance, it does not seem like giving up avocados will help much. Besides, for many of those struggling with student loan debt, avocados are an unaffordable luxury. Should these borrowers, caught up in their efforts to build a better future, give up plain toast, as well?


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David Dulberg

David Dulberg lives with his wife in the coastal hills above a narrow creek, mid-canopy in a redwood forest. He has been writing for non-profits for many years, and volunteers as a pilot on the Baum Squad, a tandem bike riding program for the Earle Baum Center for the Blind. He does not have a pet. This does not make him a bad person.

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