It's still a given that a college education means bigger paychecks over a person's lifetime. But as people take on ever greater amounts of student debt to fund school, the wealth they accumulate over their lifetimes is drastically less than people who didn't have to borrow.
Using data from the Federal Reserve, a new study by economist Robert Hiltonsmith at advocacy group Demos found that the average student debt for a household in which two breadwinners have bachelors' degrees from 4-year public universities is $53,000. The kicker: That debt leads to a lifetime wealth loss of nearly $208,000.
The predictions are dire, and of concern not only to people who owe on student loans, but to anyone who cares about the economy. "Student debt's financial impact won't just be felt by the nearly 39 million Americans who currently have student loans," Hiltonsmith wrote. "The drag of student loans on indebted households' purchasing power and ability to save will slow already sluggish growth for the entire U.S. economy."
The report said that nearly two-thirds of this loss, $134,000, comes from the lower retirement savings of the indebted household, while more than one-third of it, or $70,000, comes from lower home equity. For example, the report suggested that people without student debt were able to purchase more expensive homes and use bigger down payments to buy them. That resulted in lower monthly payments, freeing up more money for savings and investments.
Hiltonsmith's research found that people with student debt tend to earn more at the outset of their careers, as higher salaries takes priority over any other consideration when weighing what jobs to take. But that trend is only temporary: As people's careers progress, he found that the salaries of people without debt overtake their indebted contemporaries.
Read the full report: At What Cost? How Student Debt Reduces Lifetime Wealth
