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Unpaid student loans can take a significant toll on personal finances. For millions of Americans, outstanding student debt means years of ongoing payments, often averaging hundreds of dollars per month. It can be hard to balance paying back what’s owed on student loans while meeting immediate expenses and pursuing long-term financial goals.
But the impact student loan debt has on the economy goes deeper than dinging individuals’ bank accounts — it impacts entire economic sectors. Here’s how student debt affects the economy, plus ways borrowers can pay off their loans faster.
Key Points
• Student loan debt limits the disposable income of borrowers, leading to decreased spending on goods and services, which can slow economic growth.
• High debt levels often delay homeownership, marriage, and starting a family, affecting long-term economic stability and consumer markets.
• Borrowers are less likely to save for retirement or emergencies, which can lead to financial vulnerability and reduced economic resilience.
• The burden of student loans can influence career decisions, pushing graduates towards higher-paying jobs rather than pursuing their passions or contributing to less lucrative but essential sectors.
• Ways to pay off student loans quickly include making more than the minimum payment due, pursuing loan forgiveness programs, or refinancing their student loans.
Understanding How Many Americans Have Student Loans
For a comprehensive view of student loan debt and the economy, it’s useful to know just how much money is owed by borrowers across the U.S. in educational debt. In 2025, the cumulative total of student loan debt in the U.S. is nearly $1.8 trillion.
This educational debt load affects tens of millions of Americans. More than 42 million borrowers have federal student loan debt, with an average balance per individual of $38,375. To obtain a bachelor’s degree, the average public university student takes out almost $32,000 in undergraduate student loans.
For those with master’s degrees, student loan debt is even higher. The average master’s degree holder’s student loan debt is $84,203, which is more than double the average student debt balance.
Given these massive amounts, it becomes clearer how the U.S. college student loan debt crisis and the economy are enmeshed.
Demographics Most Affected by Student Loan Debt
The amount of student loan debt a borrower has varies by a number of demographic factors, including the level of education they attain, with individuals with graduate student loans owing more, as well as their race, income level, and gender. For instance, more women than men have student loan debt and black student loan holders tend to owe more than white borrowers, according to the Education Data Initiative (EDI).
Age is also a factor that can significantly affect student loan debt.
Age Groups Carrying the Most Debt
Borrowers under age 40 owe 54.5% of student loan debt, the EDI reports. While those in their 30s owe 32.5% of the student loan debt (or $517.45 billion in loans), student loan borrowers ages 18 to 29 are the age group most likely to have debt: One in four borrowers in this group owes student loan debt.
Older adults are also struggling with debt from their college years. In fact, adults ages 50 to 61 have an average student loan debt of $46,790, which is the highest student loan debt per borrower.
Here’s how student loan debt breaks down among age groups:
| Age | Average student loan debt |
|---|---|
| 18 to 29 | $23,795 |
| 30 to 39 | $42,014 |
| 40 to 49 | $44,798 |
| 50 to 61 | $46,790 |
Reviewing Effects of Student Loan Debt on the Economy
If the total amount of student loan debt held by Americans sounds staggering, that’s because it is. That total — $1.777 trillion — is more than the GDP of countries such as Australia, Spain, and South Korea.
With these numbers in mind, let’s dive deeper into the impact this massive amount of educational debt has on the U.S. economy.
Does Student Loan Debt Hamper Spending?
For those paying off a student loan, the average student loan payment for bachelor’s degree-holders is $336. Those with a master’s degree pay $842 per month, on average. For many — especially those embarking on a career and earning an entry-level salary — this ongoing financial obligation can put a serious dent in funds they could otherwise spend elsewhere.
Student loan repayments can take a big chunk of the money that individuals have available each month for buying, investing, saving, or starting a business.
Here’s why: More money spent paying back student loans means less money for consumer spending and saving. Consumer-driven economies grow when people spend their hard-earned money. If people are struggling to pay off their student loans, they’ll have less money to spend on purchases that help fuel the economy, businesses, and the workforce. The more individuals there are who are struggling to pay off loans, the greater this economic dampening effect that occurs.
During periods that require economic resilience, such as in a recession, reduced spending can be especially harmful. On the flipside, consumer spending can help to stimulate a floundering economy, possibly mitigating or reversing sudden downturns in specific sectors.
When spending doesn’t happen during a downturn, it can take longer for the economy as a whole to bounce back. And for those with student debt, it can also be harder to weather a financial crisis, compounding the pain of higher unemployment and lower spending.
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How Do Student Loans Affect the Housing Market?
With less money to spend, it’s no surprise that people with student loans have fewer funds for big ticket items, such as buying a home. According to the EDI, 29% of borrowers with student loan debt say their debt has prevented them from owning a home, and 51% of those who are currently renting say their debt prevents them from buying a place of their own.
Because home ownership is a major driver of wealth accumulation, delaying homeownership can impact an individual’s net worth for decades to come.
How Do Student Loans Stifle Entrepreneurship?
Small businesses contribute to the economy in major ways. In fact, they’re responsible for 1.5 million jobs annually, accounting for 64% of all new jobs. Small businesses employ 61.7 million people, which is almost 46% of the private sector workforce.
Future business owners who are saddled with student loan debt may not be able to turn to traditional means of financing, such as small business loans. It can be harder to get approved for financing when your debt-to-income ratio is high due to loans.
And when an individual with student debt does become an entrepreneur, they’re at risk of falling behind on student loan payments if their income decreases as they work to launch their business.
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Paying Off Student Loans Can Benefit Individuals and the Economy
When examining student loan debt and the economy, it may be helpful for borrowers to research additional ways to pay off existing student loans — both for their own financial well-being and the future growth of the U.S. economy as a whole.
Here are some strategies that could help those with outstanding student debt to pay down their student loans faster.
Paying More than the Minimum Due
Student loan interest generally accrues over time. In most cases, the longer student loan debt goes unpaid, the more the borrower will owe, as unpaid interest gets added to the base dollar amount that had been borrowed from the lender. This is called compounding, and most student loans compound their interest daily. Our student loan calculator can help you see exactly how much you’re spending on interest over the life of the loan.
Many lenders allow borrowers the option to submit a minimum payment. In the short term, paying a lower amount per month can free up some income or cash. But paying the minimum does little or nothing to tackle the outstanding loan balance — typically, the borrower is just paying the accruing interest.
Paying more than the minimum can help reduce the length of time it will take to pay off an existing student loan, shrinking the principal balance as well as the amount of interest paid during the life of the loan. You can ask your lender to apply the additional payment to the principle of the loan, which can help reduce the amount you pay in interest over the life of the loan.
While increasing monthly payments may not be manageable for every individual, paying a little extra when possible can help borrowers eliminate student debt faster. If nothing else, borrowers may want to apply occasional windfalls, such as a work bonus or tax refund, toward their outstanding student debt.
Applying for Loan Forgiveness
Under some circumstances, the government will forgive federal student loans, essentially canceling out the remaining debt after a specific set of conditions have been met.
Some teachers and public servants are among the groups that may be eligible for federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). This program is available to qualifying federal student loan borrowers who work in public service for an eligible non-profit or government organization and who make a qualifying number of payments on an eligible repayment plan.
Some states and other organizations also offer forgiveness, especially for those in the healthcare field. There are also military forgiveness programs. Check to see what forgiveness programs are available that you might be eligible for.
Refinancing Student Loans
Refinancing student loans with a private lender may result in lower interest rates and/or the ability to pay off what’s owed in a shorter amount of time.
Student loan refinancing replaces outstanding student loans with a new loan. The new loan can have different terms and ideally, a lower interest rate.
However, it’s important to know that refinancing federal student loans with a private lender means that the borrower will forfeit federal benefits, such as access to income-driven repayment plans and federal public service forgiveness programs.
Budgeting and Financial Planning for Faster Repayment
Finally, to help pay off your student loans faster, examine your budget carefully. Track your spending and expenses and look for areas where you can cut back. For instance, maybe you can eat home more often to save on restaurant bills, or eliminate one of your streaming services — or both. You can then apply the money you save to your student loan payments.
Another step that could help: automating your monthly payments. That way, you can avoid any late fees. Plus, some lenders offer interest rate discounts to borrowers who enroll in auto pay.
The Takeaway
Student loan debt affects the economy in a number of different ways. Borrowers with student loan debt may have to reduce their consumer spending and delay buying a home or starting a business, for example, which can affect the broader economy.
Fortunately, there are methods borrowers can use to help manage student debt, such as paying more than the minimum amount due, budgeting for faster repayment, looking into student loan forgiveness programs, and considering student loan refinancing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
How does student loan debt affect life?
Student loan debt can impact life significantly, affecting financial stability, mental health, and major life decisions. It may delay homeownership, marriage, and starting a family, and can cause stress and anxiety. High debt levels may also limit career choices and savings for retirement.
How does being in debt affect the economy?
Being in debt can strain personal finances and thus reduce consumer spending and savings. This can slow economic growth, as consumer spending is a key driver. High levels of debt can also lead to increased student loan default rates, affecting financial institutions and potentially causing broader economic instability.
How many Americans have student loans?
Almost 43 million million Americans have student loans, collectively owing over $1.7 trillion. This widespread debt affects a significant portion of the population, impacting their financial decisions and economic contributions.
What economic sectors are most impacted by student loan debt?
The economic sectors most impacted by student loan debt include consumer spending, since borrowers with high student loan debt may cut back on spending; housing, because student loan debt makes it more difficult for many student loan holders to save for a down payment or qualify for a mortgage; and entrepreneurship since those with student loan debt may have a tough time qualifying for financing, including small business loans.
Can widespread student loan forgiveness boost the economy?
It’s not known whether widespread student loan forgiveness could boost the economy and there is a lot of debate about the effect it might have. Some economists think widespread forgiveness could provide an economic boost because it would increase consumer spending, drive sales of housing, and help with the launch of new businesses. Other economists believe the impact might be small, that forgiving student loans would be a huge cost to the federal government, and that forgiveness would be unfair to borrowers who have already repaid their loans.
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