The burden of student loan debt isn’t necessarily a financial roadblock—although for many grads, it’s still a significant hurdle.
Recent grads with student loan debt are—no surprise—less likely than their loan-free peers to have a mortgage, auto loan or credit card, but they catch up fast, according to a new study from TransUnion. Within a few years of graduation, borrowers and nonborrowers alike have similar rates of credit activity, the study found. Consumers juggling student loans were also less likely to be delinquent on payments for new auto loans and credit cards.
“We did not find a material impact on younger consumers by this growth in loans, relative to where they were a decade ago,” said study co-author Charlie Wise, vice president of TransUnion’s Innovative Solutions Group.
TransUnion’s study assessed the credit reports of student loan borrowers ages 19 to 29 who entered repayment status in the fourth quarters of 2005, 2009 and 2012—that’s 570,000, 1.25 million and 1.56 million consumers, respectively. The credit bureau compared each population of grads over a two-year period against control groups of similarly aged consumers with no student loans, about 16 million to 18 million people in each period.
Broad economic changes over the years studied, such as high unemployment after the recession, were apt to shift the age group’s credit participation as a whole, regardless of whether they had loans or not, according to TransUnion. “The student loan group is not more impacted,” said Wise. For example, within months of graduation, roughly half as many 2009 grads had mortgages compared to new 2005 grads, whether they had student loans or not.
Rising student loan debt has spurred plenty of discussion about its effects on grads. In 2005, according to the Project on Student Loan Debt, the average grad left campus with $18,259 in loans. Among 2012 grads, average student loan debts had climbed to $29,400. The TransUnion study found that as a slice of 20-something consumers’ loan balances, student loan debt represented 36.8 percent in 2014, up from 12.9 percent in 2005.
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“Logic will tell you [student loan debt] has to affect the ability for people to purchase,” said Paul Combe, president and chief executive of American Student Assistance.
In a 2013 survey by his group of of 259 recent grads, 75 percent said their student loan debt affected their ability to buy a home, while 73 percent said they had put off saving for retirement. A quarter even said their loans hurt their ability to make daily purchases. Among households headed by college-educated adults under age 40, those with student debt have accumulated an average $1,200 in debt—versus an average $10,900 for those without, according to a 2014 Pew Research Center study.
“Every one of those decisions, even if it’s a slight delay … those are the kinds of decisions that affect the entire economy,” Combe said.
The economic overhang of student debt tends to be long-lived. Consumers with less student debt may get back on track in their 20s, Combe said, but many struggle with such loans for decades. A 2014 report from the U.S. Government Accountability Office estimated that 18 percent of households headed by someone age 45 to 54 still have student loan debt, as well as 9 percent of those age 55 to 64 and 4 percent of those age 65 to 74.
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That some grads are quickly able to meet financial milestones like getting a mortgage while balancing student loans is promising, but it says more about their individual situation than a broader trend, said certified financial planner Harriet J. Brackey, co-chief investment officer of GFK Wealth Advisors in Hollywood, Florida. Student loans may make a difference in how much of a home those borrowers can afford, and that can mean they are carrying a higher total amount of debt, which may lead to struggles down the line.
“I don’t think students have resolved the debt issue,” Brackey said.