Posted on: August 12, 2024
The United States economy impacts financial markets, businesses, and people worldwide. Many factors can stimulate economic growth or create a downturn. Currently, one significant burden is the $1.727 trillion Americans owe on student loans. According to U.S. Federal Reserve data, over 43 million federal student loan borrowers have an average balance of over $37,000M.
Consider five ways student loan debt impacts the economy.
1. Reduced College Access
Increased higher education costs are forcing high school graduates to consider whether the benefits of higher education outweigh the risk of juggling student loan debt for multiple decades. This decision may cause those from lower-income households or those who aren’t sure about their career path to forego a college degree. This decision impacts their career options as many service-oriented and technology-driven jobs require an associate’s or bachelor’s degree. Often, they are forced to seek lower-paying jobs. The average bachelor’s degree holder earns up to $22,000 more than someone with just a high school diploma.
2. Deferred Retirement Investing
Workers with student loan debt have a harder time saving for retirement than those without. In fact, 84% of employees with student loans said that debt limits their ability to save for retirement. In addition to pushing retirement age out for many, this negatively impacts the lifestyle they can support due to greater reliance on Social Security. In addition, some older workers withdraw money from their 401(k) to help with education costs for their child or grandchild, despite the tax penalties for early withdrawals and negative impact on their retirement situation.
3. Nervous Entrepreneurs
Experts report that student debt prevents college graduates from taking financial risks to create a new business. Businesses with fewer than 20 employees create a net of 1.2 million new jobs each year, creating job growth and new opportunities. Unfortunately, those who want to be entrepreneurs or business owners are 11% less likely to start a new business if they owe more than $30,000 in student loan debt. In addition, those who would like to start a business may struggle to get a loan due to commitments for college debts. Instead of pursuing new business ideas, many graduates take any job they can get to pay off their loans.
4. Delayed Home Purchases
Student loan borrowers have lower credit scores, on average, and may lack the savings needed for a mortgage down payment. The purchase of a home is being delayed, at best, by many student loan borrowers who struggle to save enough or to qualify for an affordable mortage interest rate. Borrowers with outstanding student loan payments are 36% less likely to buy a home. In fact, over 13% of millennial renters express that they’ll never be able to afford to buy a home.
5. Decreased Spending
Personal spending stimulates business development and economic growth. Economists agree that consumers who hold debt have less expendable income and are likely to decrease their spending. After mortgages, student loan debt is the second largest type of household debt. With 18% of student loan holders struggling to buy daily necessities due to their student loan payments, debt may be reducing spending for decades while these borrowers pay down their balances.
How Employers Can Help
Across the country, many employers are looking for ways to assist employees with student loan debts while also solving their own staff shortage and retention issues. Some are offering a voluntary benefit that helps employees with their student loan payments. For example, BenefitEd offers a customizable Employer-Assisted Student Loan Repayment product that employers can adapt to their situation and their employees’ needs.
Other employers are taking advantage of optional provisions from SECURE Act 2.0 that allow them to recognize their employees’ student loan payments as qualifying contributions to their 401(k) for matching purposes. This allows employees who wouldn’t otherwise receive employer match dollars to begin receiving them and start saving for retirement earlier.
BenefitEd is an expert administrator of education benefits. Reach out to our team today to learn more about our customizable products to help you achieve your business goals while alleviating financial stress for your employees and helping our national economy.