One of the benchmarks of a successful economy is how much money is being lent, because it translates to more money spent and more profits made. This is why the Federal Reserve (the Fed) instituted three rounds of quantitative easing (QE) over the course of the recovery from the 2008 recession, which were designed to induce banks to lend to the public.

But what if these funds aren’t lent to the right people or businesses? In Great Britain, economists believe they are finding out.

A challenging picture is emerging from Britain in 2016, detailed in a report by the International Monetary Fund (IMF). The report details risks to Britain’s economy, such as a lack of wage growth, no gains in productivity this year and a seriously limited housing supply.

All of this may be due to a misuse of resources. An article appearing in the Economist suggests banks continue to lend to failing businesses, despite the inability of these businesses to contribute to the economy. If the banks stopped lending to companies that are destined for bankruptcy, they instead would be able to send these resources to more profitable enterprises — like builders, for instance.

The U.S. is not immune to bad lending decisions, either. The prime instance of widespread lending that is bad for the U.S. economy is the immense student loan crisis unfolding amongst our country’s young people. This is delaying their entrance into the homebuying market.

Our student debt conundrum

The cost to attend California public colleges and universities has more than doubled in recent years, and the percentage of young people choosing to attend college continues to grow. Without an equal increase in student incomes, students are forced to take out student loans to support themselves and pay tuition while in school. As a result, the average student debt load increases 13% each year, according to the New York Federal Reserve Bank (NYFRB). The average student loan borrower owes $27,000 as of 2014, though many owe much more as one can borrow hundreds of thousands of student loan dollars from the government.

As young adults — members of Generation Y (Gen Y) — enter the workforce already weighed down by debt, their access to other forms of credit is limited. In other words, while that expensive education helped them get a job, it has effectively stopped them from advancing in other parts of life, like buying a home.

Is the U.S. allocating its resources at the wrong life stage of borrowers? After all, the federal government encourages student borrowing by:

  • paying interest on subsidized loans while the student is in school;
  • operating loan forgiveness programs to graduates serving in high demand fields like teaching, healthcare and military service; and
  • offering low interest loans to students with extreme financial need.

By making it so easy to take out student loans, the government is placing larger and heavier burdens on students, even before they graduate school. This burden has proven too much for many, as one-in-four graduates are in default on their student loans five years into their repayment plan, according to a study by the NYFRB.

On the other hand, as lending to students has increased, our society has become more educated and higher quality, better paying jobs are made accessible to students from all walks of life. Widening access to education boosts the economy in its own way, but students are still forced to delay major life events like forming households and buying homes until their student loans are paid off (a process which usually takes ten years, but can take much longer).

A better use of the government’s resources? Investing directly in state schools so tuition remains low and students don’t need to take out the equivalent of a mortgage to pay for their education. Students will still graduate prepared to enter the job market, and they will be able to fully participate in the economy like their parents’ generations.