"While student loan debt remains smaller than consumer credit debt ($4.1 trillion) or mortgage debt ($15.5 trillion), the rate of growth of student debt is significant. From 2006, consumer credit debt grew approximately 70% and mortgage debt grew by 24%, but student loan debt grew by 232%." (Source: "Does Student Loan Debt Hinder Community Well-Being?" by Steven Deller and Jackson Parr)

The narrative has been fairly straightforward: Borrow money to pay for college, but in return, you get a job that pays far more than the cost of borrowing. Yet as costs continue to increase and students take on ever-higher levels of debt that take longer to repay, that decision to borrow for college is reverberating across the communities that alumni live in.

Our new study found a link between student debt and many measures of well-being within a community. The results suggest that counties with higher levels of student debt experience lower levels of community well-being. We take tax return data from the Internal Revenue Service (IRS) and then use a methodology that allows us to answer the question: as debt goes up, what happens to things such as housing, business activity, and health?

For example, higher levels of student debt are generally related to lower levels of homeownership and higher levels of rental stress, or people that have trouble making rent payments. In this case, the problems created by too much student debt are two-fold, as people may not have any room to take on mortgage debt, driving them toward rent. With so many people driven to rent from a limited amount of available housing, rent goes up and squeeze the student debt payers even more. 

Looking at the health of a community, places with more student debt also see higher rates of smoking, excessive drinking, and insufficient sleep. Meeting debt payments is a stressful exercise, and debtors are more likely to turn to these behaviors related to high stress.

High levels of student debt may also put downward pressure on new business activity, although that result may not be as strong as housing and health. Potential entrepreneurs may have trouble accessing financing for a new business as banks worry about how much those monthly debt payments are. On the other hand, hopeful business owners may fear the financial risk associated with a startup, opting for a more stable income with an established business.

For communities seeking a healthy housing environment, healthy residents, and vibrant business activity, the growth of student debt may be a cause of concern. Luckily, local communities are uniquely positioned to help students make decisions around taking on debt and repayment options. Some research has found that many students lack an adequate understanding of personal finances to make an adequate analysis of long-term debt and future earnings. Local schools and communities can improve this fiscal literacy. They can also encourage exploration of lower-cost options, such as local or regional technical schools, for those who would otherwise take on significant levels of debt. 

Local communities can also guide students towards programs such as the federal Public Service Loan Forgiveness program, which incentivizes an educated workforce to take jobs in the often lower-wage public and non-profit sector jobs in exchange for forgiveness of federal student loans. Many states operate similar programs targeted at professions like physicians and teachers, which can be difficult to recruit to rural or underserved areas. 

Although communities generally want more educated residents, the rising levels of student debt and its impact on community well-being is increasingly becoming a trade-off. Communities would do well to view student debt as an important factor in how to thrive.   

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