How Does Student Debt Affect the Economy?

The effects of student loan debt impact borrowers and the economy at large. Learn about the long-term economic impact of student debt.
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Data Summary

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    Student loan debt is the largest non-housing category of debt in the U.S.[1]
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    People with student loan debt are less likely to be doing okay financially than people who never took out student loans.[2]
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    Some effects of student loan debt on students include postponing big purchases or delaying life goals.
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    Black borrowers and women tend to have the most student loan debt and make lower wages than their white and male counterparts.[3], [4]
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    Only 23% of borrowers in a 2021 National Association of Realtors survey said they understood the costs of attending college before going into debt.[5]
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    Long-term effects of student loan debt on the economy include risk for taxpayers and poor outcomes for the labor market.
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    In the long-term student loan debt can reinforce income inequality, create poor outcomes for the labor market, and cost taxpayers money.

As of March 2022, the total federal student loan debt is $1.62 trillion.[6] And student debt is common — more than 3 in 10 American adults have it.Note Reference [2] In fact, it's grown from being the smallest category of debt in 2006 to becoming the second largest category of debt in the U.S., following housing debt.Note Reference [1]

The effects of student loan debt on a person mean more than just a monthly payment. Debt can impact major life decisions. Student loan debt also impacts the economy, influencing the labor market and wealth distribution.

Knowing the impact of student loan debt can help learners better understand the cost of their education, and it can help anyone better understand the costs and benefits of loans and forgiveness programs.

Student Loan Debt Delays Lifetime Goals

Folks without debt have more money to buy the things they need. Having student loan debt can also delay making big purchases or fulfilling life goals, like getting an advanced degree or owning a home.

According to survey research by the Federal Reserve, college graduates who never had student loans are more likely to be doing okay financially than folks who have student debt — by 13-18 percentage points.Note Reference [2]

Source: The Federal Reserve

  • In a 2021 BestColleges survey, respondents postponed or just plain didn't do the following because of their student loans:
    • Buying or repairing their car (19% of survey respondents)
    • Returning to school (19%)
    • Buying a house or securing a mortgage (27%)
  • When the National Association of Realtors (NAR) surveyed home buyers in 2020, student debt was the biggest obstacle to saving for a down payment.Note Reference [5]
  • Less than a third (27%) of student loan borrowers surveyed by NAR said they've been able to contribute what they wanted to their retirement savings.Note Reference [5]
  • In a new Data for Progress poll, borrowers said that President Biden's recent act of forgiveness would free them up to spend more on necessities, pay down all types of debts, and save more for long-term goals and emergencies.

That's tough for students on an individual level, but how does student debt affect the economy? When students have debt, they have less money to put back into the economy. In 2019, researchers at the University of North Carolina used state-level data to confirm this common-sense finding. Their analysis found that consumer spending decreased with higher debt-to-income ratios.[7]

Student Loan Debt Worsens Economic Inequality

Student loan debt disproportionately impacts women and Black people, groups that already face income gaps compared to their male and white peers.

  • The American Association of University Women found that women carry nearly two-thirds of all student loan debt.[8]
  • Black borrowers incur the most debt compared to other races and ethnicities.
  • According to survey data from the National Center for Education Statistics (NCES), Black female bachelor's degree-holders held a median of $35,000 in student loan debt a year after graduation. That's almost twice the median debt for all students ($18,750).Note Reference [3]
  • Median annual incomes for Black and female bachelor's-holders are roughly $10,000-$11,000 less than their white and male peers.Note Reference [4]

Theoretically, the federal student loan program was supposed to expand access to higher education so people without generational wealth could increase their lifetime earnings. Instead, education debt ends up perpetuating structural inequality.

And that's a problem. As a 2020 United Nations report puts it, unequal societies are bad at reducing poverty and sustaining economic growth.[9]

Student Loan Debt Makes College Less Attainable

One factor behind skyrocketing student debt is the rising cost of college. Taking on student loan debt can lower the return on investment of college. It also might deter people from attending college in the first place.

  • 44% of students told BestColleges in a July 2022 survey that they considered dropping out due to the financial burden of attending college.
  • Less than half (47%) of the current and prospective students we surveyed said college is worth the cost.
  • Less than a quarter (23%) of borrowers surveyed by NAR understood the costs of attending college before going into debt.Note Reference [5]
  • Georgetown University researchers found that some bachelor's and associate degree programs lead to student loan payments that are even higher than loan payments for some graduate programs.[10]
  • Plus, some professional degree programs at certain colleges can lead to negative earnings after debt is subtracted. Yikes!Note Reference [10]

Educational attainment helps the labor market. True, alternative education pathways outside of college can lead to well-paying jobs. But, in general, more educated people generally earn higher wages and are less likely to be unemployed.[11]

Student Loan Debt Costs the Government (and Taxpayers) Money

We can't fully know the long-term costs of the federal student loan program to the government — that depends on if and when borrowers repay loans. Additionally, the government keeps changing its estimates for how much the federal student loan program costs.

  • According to the Government Accountability Office, the estimated cost of running the federal student loan program has shifted from earning $114 billion for the government to costing $197 billion over the last 25 years.[12]
  • Cost estimates can shift due to borrowers not repaying loans. Before March 2020, 3.2 million federal student loan borrowers were delinquent on payments. Delinquent balances amounted to nearly $100 billion.[13]
  • Emergency debt relief offered to borrowers since the start of the COVID-19 pandemic — the student loan payment pause and 0% interest — has likely cost $102 billion.Note Reference [12]
  • Additionally, the Congressional Budget Office estimated that President Biden's plan to forgive up to $20,000 of student debt for millions of Americans could cost over $400 billion over the next 30 years.

When the government doesn't know how much it's spending, it's problematic for planning budgets. And if they can't tell who will pay their debts on time, that's a risk. Ultimately, taxpayers are the ones who gain or lose from the government's risk.


  1. Household Debit and Credit Report, Center for Microeconomic Data, Federal Reserve Bank of New York, Q2 2022. (back to content ⤶)
  2. Report on the Economic Well-Being of U.S. Households in 2021. The Federal Reserve. May 2022. (back to content ⤶)
  3. Table: Cumulative Amount of Federal Loans. U.S. Department of Education. National Center for Education Statistics. Baccalaureate and Beyond 2016/17. Accessed October 2022. (back to content ⤶)
  4. Table 502.30. Median annual earnings of full-time year-round workers 25 to 34 years old and full-time year-round workers as a percentage of the labor force, by sex, race/ethnicity, and educational attainment: Selected years, 1995 through 2020. National Center for Education Statistics. October 2021. (back to content ⤶)
  5. The Impact of Student Loan Debt (PDF). National Association of Realtors. September 2021. (back to content ⤶)
  6. Federal Student Loan Portfolio: Summary. Federal Student Aid, an Office of the U.S. Department of Education. September 2022. (back to content ⤶)
  7. Bahadir, B. and Gicheva, D., The Effect of Student Debt on Consumption: A State-Level Analysis (PDF). October 2019. (back to content ⤶)
  8. Fast Facts: Women and Student Debt, American Association of University Women. (back to content ⤶)
  9. United Nations. Department of Economic and Social Affairs. World Social Report 2020: Inequality in a Rapidly Changing World. January 2020. (back to content ⤶)
  10. Georgetown University Center on Education and the Workforce, Buyer Beware: First-Year Earnings and Debt for 37,000 College Majors at 4,400 Institutions (PDF), 2020. (back to content ⤶)
  11. Earnings and unemployment rates by education attainment, 2021. Bureau of Labor Statistics. September 2022. (back to content ⤶)
  12. Education Has Increased Federal Cost Estimates of Direct Loans by Billions Due to Programmatic and Other Changes. U.S. Government Accountability Office. July 2022. (back to content ⤶)
  13. Federal Student Loan Portfolio: Delinquency Status. Federal Student Aid, an Office of the U.S. Department of Education. September 2022. (back to content ⤶)