Student Loan Debt Hurting Retail Sales

Billions Going to Loans Instead of Stores

Student Loan Debt Hurting Retail Sales
October 3, 2016

If you are burdened by student loan debt, you have plenty of company — over 43.3 million Americans as of mid-2016. According to the St. Louis Federal Reserve, the collective student debt load has topped $1.36 trillion. Student loan debt has surpassed credit cards and auto loans to become the second-highest form of American consumer debt behind mortgage loans.

What would you and 43.3 million of your fellow Americans do if your student loan debt were decreased? Buy things, say economists — and the fact that student loan debt is rising rapidly causes major concern among policymakers. In an economy that is generally considered to be 70% driven by consumer spending, excessive student loan debt poses a significant threat to the economy.

A recent analysis from Moody's lays out the expected impact of student loan debt. In "Retail — US: Retail Spending Faces Headwinds from Burgeoning Student Loan Obligations," Moody's analysts estimate the collective annual payments on student loan debts at $160 billion. Moody's retail analyst Charlie O'Shea says this payment burden will result in a "definite negative impact on retail sales."

The effects go beyond baseline consumer spending to big-ticket items. According to, over 75% of student loan borrowers have put off buying a home and 60% have put off buying a car because of their level of debt. Without new homebuyers in the market, there is no place for those who wish to upgrade to sell their starter homes — thus explaining why the housing market recovery has been so slow and uneven.

A less than robust housing market is just one example of the ripple effect of student debt on spending. Lower spending means lower demand for goods and services, and thus fewer jobs needed to meet demand. Excessive overall debt can also prevent potential entrepreneurs from starting the new businesses necessary to sustain job growth, since they are less likely to be able to secure the necessary small business financing with too much personal debt.

In an even more ominous sign, more of the student loan burden is shifting toward the age group between 30 to 39 years old — the group that typically spends the most. In 2014, this age group crossed the threshold to hold a greater share of the student loan debt than those under thirty (33% to 32%).

So far, retail sales are doing reasonably well in 2016 with sales through July showing a year-over-year increase of 2.3%. However, if Moody's analysis is correct, the student debt load may be holding that figure back from even more significant gains.

Worse still, according to, over 70% of student loan borrowers have delayed retirement savings — meaning that the ripple effects could last well into the retirement years.

How do you handle expenses when burdened by student loan debt? The first step is to budget, if you haven't done so already. Small, discretionary purchases like those extra cups of coffee or snacks add up. Once you have characterized your expenses, lay out a monthly budget to define exactly how much discretionary spending you can afford.

Take special care in managing your credit card debt, because it is likely the highest interest debt that you have. Paying ahead on your student loan makes no sense if you are acquiring higher-interest rate credit card debt to do so. Try to limit credit card spending to what you can afford to pay off at the end of each month, and apply any extra cash to paying down your debts (we suggest the highest interest debt first). Make sure that you make at least the minimum payments on all debts.

With careful planning, you can manage your student loan debt and still do your part to stimulate the economy through careful consumer spending. If you need help, consult a financial and budgeting expert. Be one of the 43.3 million Americans that succeeds in overcoming student loan burdens — and then make your voice heard in Washington, D.C., on how to lower the student loan burden on others in the future.

Find out quickly at what rate you can refinance your student loan.

Photo ©

Advertising Disclosure

  Conversation   |   7 Comments

Add a Comment

By submitting you agree to our Terms of Service
Alec | 10.03.16 @ 15:21
I never thought about the long term and ripple effects of student loan debt. Having read this, I see it now. I know a lot of people who have yet to even get married because of student loan debt, much less buy a house. These same people also make due with only one car or public transportation. It seems like if we could do something to lower the debt at one end of the problem or the other, it may help solve a lot of other economic issues.
Nancy | 10.03.16 @ 15:30
This is not surprising me. The extremes that our students have to go through to get a college education is just absolutely ridiculous. Something needs to be done.
Chrisitna | 10.03.16 @ 15:40
The whole education system needs an overhaul. As a leading nation, we need to be on par with other countries and be able to offer education for little or no cost. The expense of an education continues to rise, and, without guaranteed job leads or placements, is almost impossible to repay.
Jane | 10.03.16 @ 15:59
I have a niece who has an $80,000 student loan, and she fits the above article to perfectly. She couldn't get job in her field due to slow economic recovery, and now her degree is worthless. She cannot purchase a home, and must always live with someone to help pay rent. She works now in retail (what she worked in while she was getting her Masters degree), and does not spend money unless she has too. She fits the 30-39 age group as well. It is so sad to see her dream of being a teacher just washed away, but she had to take out loans.
Zanna | 10.03.16 @ 22:11
This really concerns me. The system is broken. It's absurd to have so many people with expensive degrees that are essentially worthless, and they're struggling with borderline poverty to pay off the loans that they hoped would launch their lucrative careers.
Mark | 10.04.16 @ 05:00
It'seems sad to see that our country has a problem with funding college loans that are easy to obtain but hard to pay back. I always wanted to go to college but found out early in life it was too expensive for me to afford let alone attend full time. So I had to continue working and landed a job that offered me a four-year apprenticeship with top money after graduation. That inspired me to work hard and learn my trade which supported my family and I all the way through graduation with a two-year associates degree so anybody can do it you just have to be willing to work for it. I could have kept going to receive a bachelor's degree but at the time I was satisfied with my career. I am now retired with life time pension and medical but regret not continuing my education. I guess it's never too late to go back to college since I have the time now.??
Crystal | 10.04.16 @ 18:30
Once again, another example of debt versus living. Seems all too familiar in the United States. I never thought about student debt and how that might take away from other areas of our economy so I really appreciated reading this article.
$commenter.renderDisplayableName() | 11.28.20 @ 13:08