MADISON, Wis. — The estimated $1.2 trillion in student loan debt held by over 37 million Americans amounts to a multi-decade debt sentence with a significant ripple effect on the economy, specifically lower rates of home ownership and new automobile purchasing, according to new, national research conducted by One Wisconsin Institute.
Scot Ross, Institute Executive Director, commented, “The reward for the hard work and responsibility of students and graduates of technical college, universities and job training programs is no longer a ticket to the middle class, it is instead a multi-decade debt sentence.”
An analysis of the nationwide data collected by the Institute revealed individuals with student loans averaged repayment terms of 21 years ranging from 18.3 years for associate degrees, 19.7 for bachelor degrees, and up to 23 years for graduate degrees.
The decades of debt translates into significantly less buying power, as shown by their ability to engage in traditional middle class economic activity like owning a home and purchasing a new vehicle. Specifically the research found:
- Rates of home ownership were 36% lower among individuals still paying on student loans versus those who have already paid off a loan across all income levels;
- For individuals reporting solid middle class incomes of $50,000 to $75,000, those still paying off their student loans report home ownership rates 28% lower than those in the same income range who have already paid off their loans. In the $75,000 to $100,000 income range loan payers home ownership rates were 25% lower than non-payers;
- Across all income levels, individuals who have paid off their student loan are more likely to have purchased a new versus used vehicle in the last 10 years;
- For those currently repaying a student loan, over 63% purchased a used vehicle instead of a new vehicle;
- In a household with a family member repaying a student loan the last vehicle purchased was used for over 71%, versus new for just over 28%;
- The survey data suggests an aggregate impact of $6.4 billion in reduced new vehicle sales annually.
The Institute’s findings are based on responses to a nationwide survey sent to a network of not-for-profit organizations. Over 61,000 individuals completed the detailed survey of their personal finances including their income and levels of educational attainment, if they had or were paying off a student loan and economic behavior like home and auto purchases. The report is available here.
Ross concluded, “American families are increasingly being squeezed by student loan debt. Instead of their money going to drivers of economic recovery like new auto and home purchases, it’s going to pay off the big banks and the federal government. That’s no good for any of us, whether you have student loan debt or not.”