What Are the Effects of Student Loan Debt on the Economy?

When deciding what to do with their lives, most teenagers decide right out of the gate that they want to attend college. This is a fantastic thing as a college degree can open up doors for new jobs, it can open up tons of possibilities, and it does increase the overall earning potential. Though there are some financial aid options out there and some students can get scholarships, the truth is that most people do not qualify for enough financial help to fully pay for college and student loans fill in the gaps and help to fill out their overall cost. 

Student loans are not necessarily a bad thing, they do allow those that might not be financially able to attend college otherwise the ability to be able to pay, but they also create a debt that many people suffer under for years to come. 

Types of Student Loans

There are four different types of student loans that you might end up taking out, there are subsidized, unsubsidized, federal, and private student loans. A subsidized loan is the most common and the most desirable when it comes to student loans. Subsidized means that you are not going to have to pay anything, taxpayers take on the burden of paying the interest, until you graduate. These loans do not come due until six months after you have graduated or after you have stopped taking classes for six months. Subsidized loans are based on financial need, this means that you have to show a financial need on your FAFSA to qualify. 

With an unsubsidized loan you are going to be responsible for the interest from the start. This means that even though you do not have to start paying back your loan until after you graduate or stop taking classes, you are going to be accruing interest from the time that the loan is taken out. These loans are not need based and anyone can qualify for them and anyone can take them as needed. 

You can also get federal student loans, which are loans provided by the federal government. These loans generally have very low interest rates, are often subsidized, and are great if you have a financial need. You can also take out private loans from banks and other lending agencies, but they tend to have a higher interest rate and may not be deferred until after graduation, meaning you may have to start paying right away. Additionally, your parents can take out a parent PLUS loan and in the future, they can refinance their parent PLUS loan for lower rates and monthly payments. While all these loans are essential and can help you get through school, they do have an adverse impact on the economy.

How Do Student Loans Affect the Student?

The first logical place to look is to see just how student loans tend to affect the students that end up taking them. First and foremost, student loans cannot be defaulted on, no matter how much debt you are in. This means that if you have a million dollars in student loan debt, you cannot default on it. This especially applies to federal student loans. This means that even if you are under so much student debt that you cannot get ahead, you cannot default on that debt and you are going to have to keep paying it back. These loans do have a lower interest rate but if you have numerous loans out at the same time your payment could still be very high each month. 

This can lead to depression, feelings of hopelessness, feelings that you are never going to get ahead, and withdrawal from society and from the world as a whole. Those that are suffering under immense amounts of student debt are likely going to be far less able and willing to participate in the economy than those that are not paying back large student loan debt. 

How Does Student Loan Debt Affect the Economy?

Though student loan debt tends to affect the borrower first, it does affect the economy as well. Those that have student loans are also far less likely and able to participate in the economy. A great example would be someone that has $100,000 in student loans. Their monthly payment may be $600 per month. This is $600 that they are not able to spend on products, merchandise, services and more which means that that money is kept out of the economy each month and is kept from being spent.

 Similarly, those that have large student loan debt are far less likely to buy a home as they are going to be concerned with being able to make their student loan payment every month and may become lifetime renters instead, which does affect the economy and does make it harder for these individuals. Those that might have started a business are going to be less likely if they have a student loan debt to pay as they are going to be reluctant to take out more loans to start a business. These potential businesses are then never started which means that they are not going to be able to contribute to the economy either. 

Student loan debt also puts a halt to milestones that many people experience in their lives. They may not buy a home, they may not buy a car, they may not move out of their parent’s homes, and more. This means that these milestones that would help make this individual a contributing member of the economy are being missed or severely pushed back. It also makes them far less likely to spend money, they want to save and make payments as much as possible which means that instead of being put into the economy, those hard-earned dollars are being put into the student loan debt machine. 

Student loan debt also makes it difficult for students to start working. The goal becomes not only to find a job, but to find a job that is going to be able to support the payments that they are going to be asked to make. This can stall the hiring process and make it harder for these borrowers to start working and start paying back their debts. Student loans are necessary, as long as the cost of college and the cost of getting an advanced degree stays as inflated and as expensive as it is, there will always be a need for student loans. 

Student loans do encourage people to seek out higher paying jobs that do give them more buying power, that does give them more power to be part of the economy, and that does enable them to pay their loans back faster. The moral of the story is that if you are taking out student loans you should be taking the time to carefully consider what type of loan you take out. For those private loans you can bankrupt on them and with the help of a great law team like those at Adam Law Group, you can get the help that you need to bankrupt on what you can and to get the outcome that you want. 

Student loans are necessary, you just need to be able to make sure you are taking out the right type and the right amount of loans so that you can pay your loans back and take care of your financial future. Loans are essential, that does not mean that they have to completely drown you and make you incapable of being part of society and being part of the bustling economy that we have all worked so hard to create and work so hard to uphold and keep working properly.