Student loan debt a ‘micro problem’, says Deutsche Bank

NEW YORK • That US$1.6 trillion (RM6.61 trillion) in student loan debt floating around in the US economy? Not that big a deal in the grand scheme of things, according to Torsten Slok, chief economist at Deutsche Bank Securities.

Student debt is a hot-button issue, and US Senator Elizabeth Warren’s proposal to cancel such debt for many borrowers strikes a visceral chord for anyone who’s struggled with the loans. But viewed next to the US$104 trillion in household net worth, that US$1.6 trillion is more of an unfortunate “micro problem” for individuals than a macro problem for the economy, Slok said.

Some 0.8% of the US population have student loan balances that top US$100,000. Loan balances for most of the 14% of the US population with student loans are between US$10,000 and US$25,000.

“When you see pictures in the paper of people with US$100,000, US$200,000, US$300,000 in student loan debt, that is only about 2.5 million people, or less than 1% of the population,” Slok said. “The question is, how representative is that individual for the whole economy? Not too much.”

Even small amounts of student loan debt can have a negative impact on financial health, however. People with higher student loan debt have lower rates of homeownership, according to research conducted by the US Federal Reserve.

The loans also make it tougher to save for retirement. The number of consumers age 60 and older with student loan debt quadrupled from 2005 to 2015, from about 700,000 to 2.8 million, according to a 2017 report from the Consumer Financial Protection Bureau. These borrowers now owe more than they did in 2005: The average debt rose to US$23,500, from US$12,100. — Bloomberg