A new research report on America’s still-growing student loan debt finds that its financial effects can last a lifetime. According to Demos, a national, nonpartisan public policy organization, 39 million Americans have used student loans to fund college education.
An education debt of $53,000 will lead to a $208,000 lifetime loss of wealth. If current student borrowing trends continue, student debt will reach $2 trillion by 2025. Additionally, $1 trillion in outstanding student debt will lead to a total lifetime loss of $4 trillion for affected households.
“Though a college education remains the surest path to a middle-class life, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families,” states the report titled, At What Cost: How Student Debt Reduces Lifetime Wealth.
Lost lifetime wealth, according to the report, will reduce two-thirds of retirement savings by $134,000 with the remaining third being lost from lower accumulations in home equity. Demos attributes these wealth losses to loan repayments, and the amount of time required for repay them in full have on savings and delays in buying a first home.
Further, the report warns of the risks that spiraling student loan debt has on the nation’s economy.“Student debt’s financial impact won’t just be felt by the nearly 39 million Americans who currently have student loans,” states the report. “The drag of student loans on indebted households’ purchasing power and ability to save will slow an already-sluggish growth for the entire U.S. economy. If we wish to avoid this fate, we need to take immediate action to both reduce the burden of existing student debt and prevent future debt from piling up even higher.”
Other key findings:
Nearly 80 percent of black students in the class of 2008 graduated with student debt averaging $28,692, while student debt for white graduates occurred with 65.6 percent and at a reduced debt load of $24,692. Approximately 75 percent of students earning bachelor’s degrees from families earning less than $60,000 incurred debt; by comparison, students earning the same degree from families earning more than $100,000 incurred debt at a rate of 45 percent.
Students enrolled in private for-profit schools incurred the greatest average debt at $33,050; followed by private, nonprofit schools with an average of $27,650 in debt. The lowest student debt was incurred at public universities with an average of $20,200. Commenting on the Demos research, Debbie Goldstein, executive vice-president with the Center for Responsible Lending said, “The problem is particularly serious for students of color and also for those who attend for-profit colleges, which leave students with much larger debts and a higher risk of default.”
Similar observations were voiced by Max Richtman, president and CEO at the National Committee to Preserve Social Security and Medicare:
“This report shows that the ability of families to save for retirement is reduced by the burden of high student loan debt, leading to diminished lifetime savings and a lesser standard of living in retirement.”
Charlene Crowell, a communications manager with the Center for Responsible Lending, can be reached at: Charlene.email@example.com