Student Loan Debt Affects Generations of Americans

The effects of student loan borrowing are not limited to current students.

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We're just about a month away from Election Day and town hall meetings are being held on major issues across the country. Can you guess which issue the Student Loan Ranger is going to highlight?

You got it: the country's $1 trillion in student debt. The Student Loan Ranger wants to emphasize the broad-reaching effects of student debt and why we think voters of all ages should care about solving this problem.

We know student debt is expanding. The Project on Student Debt found that two thirds of 2010 college grads graduated with student debt averaging $25,250, an increase from $24,000 in 2009. Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, reports another increase for 2011 graduates: an average debt of $27,000. Simply put, today's students have to borrow more, and future students will likely have to borrow even more.

[Read more about the striking rise in six-figure student loan debt.]

But the effects of student debt aren't limited to today, or to today's students. Effects span generations and will be a factor for years to come. All of us should take notice, because we all could be affected.

Student debt affects retirees. SmartMoney.com reports that, in the first quarter of 2012, about 2.2 million people 60 years and older held student loans—who may have borrowed for their own schooling and to help with the increasing costs faced by their children and grandchildren. About 10 percent of those loans were delinquent (overdue by at least 90 days).

The Student Loan Ranger has written about the devastating effects of delinquency and default (and offers a free Education Debt Manual and free Educational Debt webinars for readers who want to learn more). In addition to destroying credit and affecting the ability to hold a professional license, if you have federal student loans, the government can seize tax refunds, and garnish wages and Social Security payments. So far this year, the government has garnished the Social Security checks of 115,000 retirees, SmartMoney.com reported. 

Student debt also affects middle-aged Americans, or baby boomers. As of this March, the delinquency rate for borrowers ages 40 to 49 was 11.9 percent, the Wall Street Journal reported. And, as SmartMoney.com reports, repaying student loans exacerbates an already dire situation for about 45 percent of people ages 48 to 64, who won't save enough to pay for their basic needs during retirement. And many boomers are still borrowing to help with the rising costs their children must pay, growing the burden.

[See how students are taking on more college costs.]

Those children are also undertaking a greater burden, affecting their ability to take the traditional "next steps" in life. "Denied? The Impact of Student Debt on the Ability to Buy A House," a recent policy brief by Young Invincibles, found that typical student loan borrowers with average consumer debt were not likely to qualify for the average mortgage. And the Department of Education has reported that 13.4 percent of borrowers whose loans entered repayment between Oct. 1, 2008 and Sept. 30, 2009 had defaulted within three years, before Sept. 30, 2011.

Aside from the devastating effects on credit and personal savings, this has effects on the national economy. For example, "Denied?" reports that "spurring about 143,000 first-time home buyers creates approximately 86,000 new jobs," and private residential investment returning to its historical average of about 4.5 percent of GDP would create about 2.9 million jobs.

Students' and grads' reduced spending power also restricts investments and pensions. The logic, as set forth by financial author Daniel Amerman, is that millions of baby boomers (some of whom may not have ever even thought about a student loan) rely on college educated professionals to purchase their retirement funds, but these professionals will have less money to invest and won't invest until later in their careers, causing funds to drop (they also won't be investing in their own retirement).

Another reason why, according to Amerman: "We truly are all in this together … When wealth is taken from our collective children for decades to come–it is taken from all of us for decades to come."

Unless trends are reversed, those decades threaten to bring greater costs, greater debt, and greater delinquency and default—and those will bring greater consequences for all of us. If we continue to feed the black hole, will student debt engulf us all?

Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. She has served on student loan committees in the Department of Education's negotiated rulemaking focusing on the College Cost Reduction and Access Act (CCRAA) and other debt relief initiatives. Radhika graduated from Loyola Law School Los Angeles. Prior to joining Equal Justice Works, she was a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.