Canadian students are experiencing a debt crisis. According to the Hoyes Michalos Bankruptcy Study, student debt contributed to more than 17.6% of Ontario's insolvencies in 2018. If we extrapolate this Canada-wide, this means that in 2018 approximately 22,000 former students filed for bankruptcy to deal with their student debt. If we consider this number in relation to the overall population, the young age of the debtors, and the relative health of the economy, then it's safe to say we're looking at an epidemic.

Most of the expense of post-secondary education is being financed through student loans. This is despite the introduction of the Canada Education Savings Grant program and tax-sheltered RESPs. In fact, over 40% of post-secondary students fund their education through either government-guaranteed Student Loans or private student debt.

The problem is that the debt that post-secondary students accumulate lingers. According to recent statistics, only 34% of bachelor graduates had completely paid off their student loans three years after graduation. Furthermore, Canada Student Loans reports that students usually take between nine and 15 years to pay off their student loans in full. Some say that debt consolidation is a solution, and that indeed can be true for many students. However, most don't get there and instead file for bankruptcy or make a consumer proposal to creditors first.

The student debt crisis is also an issue for the average Canadian. This is because students are the future of the economy. Ergo the future is drowning in debt. As a result, the housing market, the health of the economy, and the banking system's liquidity are at risk.

The Student Debt Crisis' Impact on the Housing Market

Due to the massive debt that graduates are carrying, they are delaying moving out of their parents' homes and buying their own property. Consequently, this delay in home ownership is causing a dip in the housing market. Baby Boomers are particularly affected because they are looking to trade their larger houses for something smaller. Furthermore, banks tend to deny mortgages for students because their credit scores have taken a hit through a combination of minimal credit history and a high student loan debt.

The Health and State of the Economy is Affected by Student Debt

A key metric for determining the health and state of the economy is personal disposable income. Post-secondary students and graduates who are dealing with debt have very little disposable income. This is because most of what they're earning goes towards their daily needs and paying off their loans. Purchases such as cars and higher-end electronics are being put on the sidelines. As a result of people spending less, the economy is moving slower.

The student debt crisis is also causing many entrepreneurial dreams to be put on hold. Entrepreneurs and start-ups help the economy to prosper in a lot of ways. For instance, they help create new businesses, increase employment opportunities, create new wealth, and contribute to a nation's overall social development. However, because the average graduate carries about $37,000 in debt, they are not attracted to the risk of being an entrepreneur. Instead, they want to find a good-paying job as quickly as possible. And even if they wanted to pursue a start-up, their poor credit scores would hold them back from getting a loan for the initial capital.

The Student Debt Crisis Affects the Liquidity of the Banking System

According to recent statistics, over half of millennials have no retirement savings. This is attributed mainly to their student debt. Therefore, many individuals aren't putting money in the bank, which is causing the banking system to become less liquid. As a result of this growing imbalance, the loan-to-deposit ratio is affected, making lenders more risk-averse. Thus, the less liquid the banking system is, the more economic pressure there is on everyone.

Conclusion

The student debt crisis is something everyone should be concerned about. When a large segment of the population can't buy houses and doesn't have disposable income, this affects the economy's health. Additionally, because students have such a heavy debt burden, they aren't putting money in the bank, making the banking system less liquid. Consequently, lenders are more risk-averse, which affects anyone who needs a loan.