• According to the World Inequality Report, US wealth inequality is higher than Europe's due to debt.
• The reverse was true in the past, but student debt and mortgages put the US middle classes in a difficult spot.
• Student loans and mortgages were both created in the spirit of equality in America after World War II.

America's middle classes can thank student debt and mortgages for its major inequality.

The World Inequality Lab released a Tuesday report that examined the gap between the rich and the poor around the world. The report examined the evolution of wealth in rich countries and found that America's middle classes have a lot more debt than Europe.

The report stated that "One of the major differences between the regions is that Europe has managed to keep a relatively solid middle class while the US has seen this group squeezed by an explosion in debt (particularly housing debt), which has triggered the 2008 financial crises."

Wealth inequality was high in the US and Western Europe during the 20th century due to a lack reforms that would distribute wealth. Women were not allowed to vote and Black Americans couldn't vote until 1965. This was due to political inequalities which significantly restricted the ability of the working class and the middle class to take action to combat wealth inequality.

Inequality due to the US's rising debt has been growing faster than Europe since 1980. The US' middle 40% wealth share dropped from 34% to 28% in 1980, while it remained around 40% in France during the same time period.

According to the report, "Europe was inherently more equal than the USA in the late 19th century and early 20th centuries."

Student debt is on the rise

Student debt and mortgage debt are the two most significant types of debt Americans have. They were both created in an era of equality post-World War II America.

This was when education and homeownership were the main paths to success. Larry Samuel, author of "The American Dream" and founder of Age Friendly Consulting, explained this to Insider.

The United States was concerned about falling behind after the Soviet Union launched its first Earth-orbiting satellite into orbit in space in 1957. The Higher Education Act of 1965, President Lyndon B. Johnson, created the student-loan sector to allow every American to access higher education. It became an industry that made profits at the expense borrowers, as Josh Mitchell, Wall Street Journal, explained in "The Debt Trap".

Some Democratic lawmakers have criticized the student-loan sector for taking advantage student-loan borrowers, and mislead them into taking on more debt that they can pay back. This, combined with high interest rates on loans can lead to borrowers being trapped in an often unavoidable cycle.

Insider previously reported that a borrower said, "What I don’t understand is if you take out a certain amount and pay that amount already and still owe more than you originally owed, it’s just nuts." It's amazing to me that the total amount isn't decreasing. It isn't going away."

The average American has $32,000 in student loans today -- a significant drag on net worth that is used to determine the middle class status. Many believe that student loans will follow their lives due to rising interest rates. This can impact their ability to get mortgages and federal benefits.

Mortgages are on the rise

Another staple of the American Dream was a suburban house with a white picket fence, a dog in the backyard, and a lawn. Americans became obsessed with wartime savings and material wealth, with the suburban home and all its consumer trappings leading the charge.

From 1940 to 1960, homeownership rates rose by 21%. As is the case with supply-demand, many people wanted to live in McMansions over the following decades. Housing prices soared accordingly.

For years, home prices have risen at a faster rate than before the Great Recession. In 2018, first-time homebuyers paid 39% more than they did nearly 40 years ago. This has only worsened the housing crisis. It is characterized by a housing shortage that was unprecedented and a high demand for housing, which has been fueled by urban flight. The national median home sales climbed steadily, reaching a record of $386.888 in June.

Many middle-class Americans are discouraged from buying because of the rising cost of housing. If they can't find a way of buying, it will mean a more expensive mortgage. This is especially true if they choose to pay a lower down payment than the 20% standard. Experian recently reported that the average American mortgage balance is $208,185.

Ashley Nader, 27, who has been house hunting since last year, said to Insider that "The American Dream" is built on debt. No one owns anything.