At first glance, it may seem as though the student debt crisis is a somewhat limited problem, only affecting college-educated Millennials and the companies trying to recruit them. Unfortunately for everyone, this is not the case. It’s true that student debt ‘only’ affects about one-in-eight Americans (roughly 40 million people, disproportionately Millennials), but everyone feels its 1.3 trillion dollar impact. How? Well, there are two main reasons: decreased consumer spending and decreased investment, both which are significantly affected by the massive load of student loan debt.
Consumer spending is commonly seen as a major driving force in the modern U.S. economy. In very simplified terms, spending drives more production, which drives more employment, driving higher wages and more spending. At its best, consumer spending can lead to a positive feedback loop of higher spending driving production, higher wages and higher standards of living. The flip-side of this is that decreased spending can lead to reduced growth. According to this article from Business Insider, student debt leads to decreased spending, which has a significant adverse effect on the U.S. economy, hurting everyone involved.
While spending drives current economic activity, savings fuel investment, leading to greater future economic growth. The process is relatively straightforward: banks take peoples’ savings and leverage them into loans and investment to spur growth. Past generations, with the help of incentives like 401(k), have happily saved money, making significant returns and helping accelerate the economy. However, this process does not seem to be happening with young people as much as it did in the past. According to Bloomberg, Millennial savings are not saving nearly as much as previous generations, the root cause being the burden of student debt. This, they conclude, has resulted in a significantly negative impact on the U.S. economy as well.
There is one major caveat to the above argument, however. The spending and investments lost by student loan repayments are not simply the result of money being thrown away. In fact, it is quite the contrary. Student loans go into providing one of the best investments out there– education, which significantly increases economic and social well-being. Student loans, because they allow more people to get educated, are many times well worth the cost, but can become a major burden when too large. So, all things considered, student debt has an overall positive impact effect on the economy. What we at Peanut Butter aim to do is remove that burden through employer student loan repayment options, helping new workers, employers and the economy simultaneously. If you’re interested in finding out how exactly Peanut Butter could help your company solve the student debt crisis, click here.