Will Student Debt Suffocate Economic Growth?

May 07, 2015

According to the National Center for Education Statistics, an estimated 1.8M students across the country will graduate this month with their undergraduate degrees. These graduates are entering an ever-improving job market as shown by the latest unemployment figure of 5.5%, but they are also graduating with an increasing amount of debt as shown by this week’s chart.

Total student loan debt levels have grown by over 64% since the end of the recession in 2009. Wage growth, on the other hand, has been modest, increasing just over 10%. There are two major concerns about this disconnect between student debt and wage growth. The first is that there will be a widespread pattern of defaults on this outstanding debt, as students are unable to keep up with the loans after graduating. The second is a reduction in consumption from millennials who are spending a larger percentage of their incomes on debt service, rather than consuming goods and services. Together these two issues could be a significant drag on economic growth.