How Student Debt and Housing Costs Are Reshaping the Economy

What this video’s about

In this episode of The Market Share, Paul Gifford, Chief Investment Officer at 1st Source Bank, sits down with Rob Romano, Director of Research, to unpack three closely connected economic topics: the financial strain on higher education, the changing landscape of student loans, and the long-term effects on the housing market.

How are tuition costs, loan defaults, and delayed home purchases shaping the economy? Let’s take a look at key trends affecting young adults, local economies, and long-term financial planning.

Colleges face growing financial stress

Higher education institutions across the country are facing serious financial headwinds. Rob explains that rising costs, declining enrollment, and reduced federal funding are putting pressure on both small colleges and major universities.

Siena Heights College, a private school in Michigan with about 2,000 students, will close after this academic year. And even large public institutions are struggling. Michigan State University, for example, has announced a 9% budget cut spread over two years, including layoffs and staff reductions.

These schools play a major role in local and regional economies through employment, construction, tourism, research, and entrepreneurship. “They’re incubators for small businesses and startups,” Rob notes. As they face budget pressure, the ripple effects extend far beyond campus.

Adding to the challenge is a projected enrollment decline over the next 10 to 15 years. One analyst cited estimates that 400 colleges could see a 25% drop, while 100 more may lose 50% of their student population.

To stay relevant, many institutions are adjusting. Some are building AI-focused curricula and expanding online learning, but the financial picture remains difficult, especially for smaller schools.

Student loans: The pressure is back on

Any conversation about higher education would be incomplete without discussing student loans. The numbers tell a sobering story. Roughly 45 million U.S. adults have student debt, with 24% in some form of default. While the total loan balance is nearing $2 trillion, most borrowers—about 75%—owe $40,000 or less. Women hold two-thirds of all student debt.

The payment pause that began in March 2020 lasted over three years. Full payments resumed in October 2024, and by May 2025, collections could begin for those who remain in default.

This puts real pressure on young adults who are trying to establish themselves. “Falling into default can significantly hit your credit score,” Rob explains, “which affects your ability to buy a car, a home, or really engage in the economy.”

First-time homebuyers face affordability barriers

The final piece of the puzzle is the housing market. Young adults burdened by student debt are delaying home purchases, which is contributing to broader challenges in housing.

Affordability remains the biggest obstacle. Lower interest rates could help, but Rob points out that “we’d need a significant decline in rates to truly impact housing.” The math has shifted: in 1985, the median home price was roughly 3 to 3.5 times median income. Today, that ratio is closer to 5 or 5.5.

The amount of available homes has improved somewhat: the 511,000 as of June is the highest level since 2007. But demand from first-time buyers remains weak. In 2010, they made up 50% of the market; today, just 24%.

Paul adds that the average age of first-time homebuyers has climbed into the mid-30s, up from the late 20s. This delay in household formation could have long-term economic consequences, from reduced consumer spending to slower community development.

Conclusion

Higher education, student loans, and housing are tightly connected issues shaping the lives of young Americans and the future of the broader economy. Rob and Paul offer clarity on these trends and what they mean for local communities, financial markets, and long-term planning.

Understanding our rapidly-changing economy is more important than ever. Subscribe to The Market Share to learn what’s changing and how it affects you.

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