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Student debt could hamper future economic growth, study says

April 18, 2013|By Shan Li
  • Young workers with student loans are less likely to take out mortgages or get car loans, according to the Federal Reserve Bank of New York.
Young workers with student loans are less likely to take out mortgages or… (Ricardo DeAratanha / Los…)

Looming student debt could hamper future economic growth as young people tamp down on spending and borrowing in the years to come.

Compared with counterparts not saddled with student loans, these young workers are less likely to take out mortgages or car loans, according to a study by the Federal Reserve Bank of New York. It's a potentially worrying sign that these workers may be less optimistic about their future earning potential because of the millstone of student loans.

Last year, 43% of 25-year-olds had incurred at least some student debt, up from 25% in 2003, the study said. Over that decade, the average loan balance had jumped 91% to $20,326.

Worries over paying back those loans could spill over into the wider economy.

"While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today's marketplace," the New York Fed said.

Those "lowered expectations of future earnings" could, the study suggested, "have broader implications for the ongoing recovery ... and of U.S. consumer spending more generally."

That may be a particular problem for the housing industry. The study found that among 30-year-olds, the rate of home ownership for those saddled with student loans was almost 2% less than those without.

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Follow Shan Li on Twitter @ShanLi

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