US Student Debt System: Consequences’ Analysis

Subject: Education
Pages: 3
Words: 674
Reading time:
3 min

Employees with college educations avoided some of the worst impacts during the pandemic’s peak. The student loan problem is currently looming, even though student loan installments have been stopped since March 27, 2020 (Hess, 2021, par. 1). The moratorium was slated to end in October 2021, and lawmakers and experts have warned that millions of borrowers will face “extreme financial difficulty when payments start” (Hess, 2021, par. 1). As a result, there are specific negative trends in the US student loan system. While student debt can help assist Americans in obtaining educational benefits, the outlined financial structure is causing the economy to stagnate.

Students pay substantially higher college prices than prior generations due to decades of funding cuts to education. College expenditures have risen by more than 16 percent in the last ten years, while student debt has risen by 99 percent (Norvilitis & Linn, 2021, par. 1). Today, nearly 70% of first-year college students obtain funding to fund their schooling, but they also take out higher amounts of loans (Norvilitis & Linn, 2021, par. 1). Furthermore, young graduates have joined the workforce in one of the most challenging job markets for young people. According to the Pew Research Center examination, 2020 college graduates had a more significant drop in workforce participation than those who graduated during the Great Recession (Norvilitis & Linn, 2021, par. 3). According to figures from the Federal Reserve, millennials own only 5% of the country’s wealth, while baby boomers own 52% (Norvilitis & Linn, 2021, par. 1). Consequently, the amount of money modern students hold at the possession significantly decreases over the years.

Student debt affects borrowers over time through increasing loan burdens, reducing credit scores, and ultimately limiting their purchasing power. Because student debt affects young people disproportionately, they may be less able to engage in — and contribute to — the overall economy. According to the Federal Reserve, student debt deducts about 0.05 percent of GDP each year (Markle, 2019, par. 1). While the force distribution may look minor, as debtors struggle to purchase homes, save for retirement, and invest in stocks, the impact may grow. Furthermore, many borrowers are projected to renege on their student loans, which is a source of anxiety. Approximately $158.5 billion in government-administered student loan debt is already in default, with the total amount likely to rise after the federal student loan repayments halt ends (Markle, 2019, par. 1). According to Brookings and ADP data, about 40% of debtors will default on their student loans by 2023, and loan payments accounted for 35% of highly unfavorable loan amounts (Markle, 2019, par. 4). Thus, the argumentation described above evidently demonstrates in which way the economy of US is at risk due to the current student loan system.

However, there are example of an effective system of student funding in Finland, where it provides free secondary and tertiary education. The government department KELA provides financial assistance (OKM, 2022). The majority of student financial help goes to students in higher education, but small volumes are provided to students in secondary school (OKM, 2022). Individuals well over the age of twenty who live alone receive advantages regardless of their parents’ wealth in higher education (OKM, 2022). Learners in bachelor of science and master’s degree programs are eligible for financial aid in tertiary education (OKM, 2022). Only months devoted to actively studying are funded; in the summer, unless a particular season learning plan is prepared and fulfilled, benefits cease (OKM, 2022). Thus, such system is proven to be more efficient and careful for the citizens and their financial well-being.

In conclusion, the analysis presented supported the claim that the U.S. student debt system has a severe negative impact on the functioning of the economy. Statistics were cited confirming that students have to pay higher amounts over time, which negatively affects the inflation process. Moreover, it has been explained and proven why the above factor harms purchasing power. Hence, as an alternative, the Finnish system was presented, showing a healthy approach to providing its citizens with higher education.


Hess, A. J. (2021). 3 ways student debt impacts the economy. CNBC.

Norvilitis, J. M., & Linn, B. K. (2021). The role of student debt and debt anxiety in college student financial Well-Being. Journal of Student Financial Aid, 50(3), p. 3.

Markle, G. (2019). Crushing debt or savvy strategy? Financial literacy and student perceptions of their student loan debt. Journal of Student Financial Aid, 49(1), p. 5.

OKM. (2022). History of financial aid for students – OKM – ministry of education and culture, Finland. Opetus- Ja Kulttuuriministeriö.