A generation of youngsters is being hobbled for life,
experts say, and there is no solution in sight
STUDENTS ALL OVER America are drowning in a tidal wave of debt, and the consequences for the economy are alarming, according to three recent studies.
Personally, I know a few examples. They are in some of my journalism classes – now on hiatus for the summer.
“As seen in the chart… the share of 25-year-olds with student debt has increased from just 25 percent in 2003 to 43 percent in 2012,” reports the New York Federal Reserve Bank in a study by Meta Brown and Sydnee Caldwell published April 17
This graph from the Fed speaks volumes about the extent of the student loan bubble … and the trend is ever skywards. Source: Federal Reserve Bank of New York.
in Liberty Street Economics.
“Further, the average student loan balance among those 25-year-olds with student debt grew by 91 percent over the period, from $10,649 in 2003 to $20,326 in 2012.” READ IT HERE.
Meta Brown is a senior economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
The Fed study comes about eight months after a Pew Research report on the same topic headlined: “A Record One-in-Five Households Now Owe Student Loan Debt.”
Written by Richard Fry and published on Sept. 26, 2012, the study found: “About one out of five (19 percent) of the nation’s households owed student debt in 2010, more than double the share two decades earlier and a significant rise from the 15 percent that owed such debt in 2007, just prior to the onset of the Great Recession.”
This is the report from Pew Research published Sept. 26, 2012. Click the image to visit the site.
THE ANALYSIS was based on then-newly available government data. READ IT HERE “The Pew Research analysis also finds that a record 40 percent of all households headed by someone younger than age 35 owe such debt, by far the highest share among any age group.”
By any measures, these numbers are alarming.
A bachelor’s degree has become almost mandatory for even entry level positions…
According to a report by Jacob Soboroff on April 4 at The Huffington Post, a job posting by a McDonald’s franchise in Massachusetts wanted applicants for a cashier’s position to have a college degree. The ad, posted on jobdiagnosis.com, is viewable on the HuffPo site, and clearly shows a bachelor’s degree requirement. SEE IT HERE
Some have argued that, with the demand for entry-level positions far outstripping the supply since the onset of the Great Recession, this is just a strategy some companies are using to staunch the flood of responses to any opening advertised.
If this is true, isn’t it rather deceptive?
According to the Fed’s April study, “Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree.”
But the effects on the overall economy, and the languid pace of recovery, are what should really concern us.
First, those with student loan debt are finding it more difficult to get a mortgage.
“Now, for the first time in at least 10 years, 30-year-olds with no history of student loans are more likely to have home-secured debt (mortgages) than those with a history of student loans,” the Fed reports.
They are also having problems financing automobiles.
“As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores,” Brown and Caldwell find, “consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.”
Here is the page with the April 17 report from the Federal Reserve Bank of New York. Click the image to visit the site.
THIS WAS PRECEDED, again, by Richard Fry in a Feb. 21 report from Pew Research titled “Young adults after the recession: Fewer homes, fewer, cars, less debt.” READ IT HERE
“After running up record debt-to-income ratios during the bubble economy of the 2000s,” Fry writes, “young adults shed substantially more debt than older adults did during the Great Recession and its immediate aftermath—mainly by virtue of owning fewer houses and cars.”
The Pew Research Center report was based on an analysis of Federal Reserve and other government data.
The Fed’s April report wraps it all up in terms of what it means for all of us and the American economy.
“… [L]owered expectations of future earnings and more limited access to credit … may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally,” the study concludes.
“While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace.”
This is a growing tragedy of remarkable proportions. An entire generation, it seems, is being hobbled for life (student debt is not dischargeable under current bankruptcy laws) and the entire economy is being dragged down as a result.
Don’t expect any solutions to be forthcoming from the one place the might have the power to change this. Congress is paralyzed by partisan gridlock. The president, who has mere months before he truly becomes a “lame duck” seems powerless to get any meaningful action out of it.
Perhaps “buyer beware” is the best advice I can offer current and potential future students embarking on their educational careers. This is just depressing.
Confession: This post was inspired by Annie Lowery’s outstanding report “Student Debt Slows Growth as Young Spend Less” in the Business section of The New York Times of May 11. Read her story here