In recent years, student loan debts have risen significantly. Tuition has increased rapidly and much more drastically than increases in wages and median salaries. For the first time, student loan debt is becoming as substantial as the debt owed by mortgages. As a result, millennials and soon to be the Generation Z will be forced to spend their disposable income on settling previous debts owed to institutions. The average US student debt peaked at roughly $27,000 in the last year and continues to rise. Student loan debt totals to over $1.45 trillion and is succeeded only by automobile and mortgage debt. The number of defaults on student lan debt has risen drastically as well and has begin to creep closer and closer to crisis level proportions.
Student loan debts are especially damaging to middle and lower class millennial students as the crisis thickens and increases in ferocity and velocity. For those who don't have strong support systems and wealthy parents and other relatives to help pay off their tuition, many students are forced to turn to the financial system to afford college. In a job market that has become significantly more competitive due to the rise of automation and other high-skilled job opportunities, college education and other modes of higher education become much more necessary to simply stay afloat within this current economic setting. However the student loan environment is anything but friendly. As student debts rise, wages remain stagnant and as such, the likelihood that students will be able to pay off their loans post graduation seems much more slim as the years go by. Without a high enough income to pay off the rising costs of student debt, students become stuck into a debt trap, meaning their real wages decline relative to the level of debt they are in, forcing them to enter a state in which they must pay off student debt for practically the rest of their lives.
This means that down the line the millennial and future generations will not be investing in retirement, homes, mortgages, auto loans and other sources of significant financial capital. This damages the investments of the future and deteriorates the American economy. As investments in other projects and realms stagnate from future generations, the amount of money flowing through the economy, otherwise known as the circular flow, will significantly decrease, leading to a drastic reduction in economic growth and as a result will increase the likelihood of economic crises and financial panics. In addition, inequality gaps will significantly increase as much of the wealth moves from the middle and lower classes to the upper classes, leading to much larger propensities to save and a much more unequal distribution of power.