Student loan debt may finally be hurting the overall economy

Our higher education system is dysfunctional. Tuitions are unreasonably high and most colleges and universities these days care less about education and more about building multi-million dollar complexes on their campuses. This results in more students going into debt to pay for a higher education that doesn’t result in gainful employment after graduation anyway. For some time now I suspect that financial analysts probably felt that student debt would not lead to a financial collapse on par with the subprime meltdown of 2008. This is government backed debt and the government will extract its pound of flesh through garnishment if need be. Therefore people will pay one way or another. While the risk of massive defaults and a meltdown will not occur, what this massive student debt can do is bleed into other sectors of the economy.

Higher debt burdens will defer home purchases for many borrowers while requiring others to buy a less expensive home in order to qualify for a loan or save for a down payment. The paper estimates that every $250 per month in student loan debt reduces borrowers’ purchasing power by $44,000, and since 2005, some 3.8 million additional households have at least $250 per month in student debt. For now new home sales are impacted but what about other big-ticket items like vehicles? I say that you will start seeing car sales slow too. I highly recommend people see the documentary Ivory Tower. After watching this film if you don’t walk away angry then you’re probably in the 1 percent. via Student Debt Could Reduce Home Sales 8% This Year, Report Says – Real Time Economics – WSJ.

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