August 28, 2013
Student Loans Will Haunt You to the Grave
We’ve devoted considerable space on this blog documenting the ways in which student debt prevents young people from beginning their lives as adults. A study from Demos, for example, finds that among college graduates, those without student debt are more likely to own a home and enjoy lower interest rates on their mortgages. But the effects of debt can also linger into older adulthood, even when the loans are paid off: the study found that debt-free grads build up a hefty $208 thousand more in wealth over the course of their lifetime. Time breaks down the reasons why:
The Demos report assumes a two-headed household, collectively carrying $53,200 in student loan debt. Servicing that debt chews up 7.5% of their income during the life of the loan, siphoning funds from savings and investment opportunities. These borrowers are more limited in their ability to build home equity and retirement savings as quickly as their debt-free counterparts.
Over time, the gap between the two widens. “Nearly two-thirds of this loss ($134,000) comes from the lower retirement savings of the indebted household, while more than one-third ($70,000) comes from lower accumulated home equity,” the group says.
This is more evidence, as if any was needed, that American higher ed is doing young people a great disservice. Colleges should be preparing students for life as an adult by giving them the skills they need to thrive in the workforce. While some programs succeed in this task, many do not, and they still saddle students with debt that will dog them for much of their lives.
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