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Skyrocketing Student Debt Balances Takes Its Toll on The Georgia Economy

Submitted by Tommy Wyher on Mon, 05/08/2017 - 12:01pm

Student debt burdens all of us, not just those who take out educational loans.

Take for example, Georgia. It has 1.45 million residents owing an average $30,443 in federal student loans, according to White House data released in March 2015. That was second only to the country’s capital, Washington D.C., where some 140,000 residents owed $40,885, on average.

And, Georgia has seen a decline in home and auto buying since the end of the Great Recession.

“Present findings in Georgia lend support to the hypothesis that student loan debt is a drag on certain sectors of the economy,” according to a January 2015 study from The Center for State and Local Finance at Georgia State University.  “Four years into an economic recovery, young student loan borrowers have not re-entered housing and vehicle markets anywhere close to their pre-recession levels.”

Even worse, students at Georgia colleges and universities are defaulting on their student loans at a higher rate than the national average, according to a U.S. Department of Education study released in September 2016. Twelve percent of Georgia post-secondary students who were slated to start repaying their loans in 2013 were in default by the third year of payment. Additional research has found that higher default rates in Georgia has made it more difficult for residents to meet the stringent requirements for student loan refinancing. The national default rate of student loan debt is 11.3 percent.

“Since the 2001 recession, student loan borrowers in Georgia have had credit scores consistently 20 to 30 points below their peers from a national sample,” said Georgia State University. That could also account for lower home and auto purchases as lower credit scores due to a default or delinquency in paying off student debt could make big-ticket item purchases difficult and unaffordable.

Although Georgia is a prime example to study because of its high average debt load and default numbers, surveys show these trends are widespread. People saddled with a large amount of educational loans are loathe to take on even more debt to buy a house or a car or even holiday gifts for others. And any default or delinquency on your record may make it nearly impossible to afford a house or car.

A 2015 survey showed more than half of borrowers will delay a car purchase because of their high student loan burden. That same survey said one in seven borrowers have even put off marriage to deal with their student loans.

With less overall spending, economies can sputter. Many economists believe that’s why economic growth (less than 2.5%) has been so slow since the economy exited the Great Recession. "It’s a drag on the economy because purchases aren’t being made," said Barbara O'Neill, a specialist in financial resource management for Rutgers University. "It’s probably dragging down our GDP."

Further, people who are busy paying off educational debt don’t necessarily think about saving for their future. Between 2007 and 2010, the percentage of workers in their 30s who likely won’t have enough money to retire rose 9 points to 62 percent, says the Center for Retirement Research at Boston College.

However, the flipside to this surge in educational debt, some say, is most college graduates in their 20s and early 30s have more earning power. They may have huge amounts of student loans to pay off but they will earn more over their lifetime with that degree. The college-educated earn, on average, 80 percent more than those with only a high school diploma and have higher employment rates.

Also, more people are attending college. “It is good that more and more people are going to college and most of the borrowing is productive,” said Sandy Baum, a professor at George Washington University's graduate school of education and human development. “The alternative of people not going to college is not a good one."