The growing stack of student debt isn’t just mentioned in article after article, but basically screams at us in giant red flashing letters: $1 TRILLION.
And, yes — that is a lot of loans. And, yes — it is troubling that many graduates can’t find jobs, that some graduates are six figures in the hole, that college may not be a worthwhile investment anymore (according to talking heads who, for the most part, went to college).
But what’s not covered nearly as much as alarming statistics is what those numbers really mean — not just for a young person facing the monthly bills, but for the economy as a whole.
I’ll give you a hint, though: It’s not pretty.
Let’s look at housing, for one, and start with a quick story. I recently learned that a friend is sitting on more than $100,000 in debt — an example that I thought was just an overused figure in alarmist literature. Right now, he suffers through a two-hour commute each way because he can’t afford to move out.
And he sure isn’t the only one. A Census report released last week was just the latest confirmation of the trend of “boomerang kids” — hordes of grads moving back home instead of striking out on their own. The result? Fewer Millennials are jumping into the housing market.
The Atlantic touched on this trend in an in-depth article called “The Cheapest Generation,” but wrapped the story up with a head-scratching conclusion:
“Simple arithmetic says that if Americans spend less money on cars and houses, they’ll have more money left over to spend or save. … Education is the obvious outlet … if young people invest less in physical things like houses, they’ll have more to invest in themselves.”
That arrow seems backward, though. Investing in education — a booming trend that has just recently started slowing, and which comes with rising costs and rising debt (remember? $1 TRILLION) — is at least part of the reason more young Americans are spending less money on cars and houses. They have to pay for that education and, thus, simply can’t afford a big-ticket buy (and sometimes, even rent).
Of course, we don’t want to oversimplify the arrow going from high student debt to low homeownership, either. The recession sure hasn’t helped young graduates get jobs or houses (especially with tighter lending standards).
But the trend in housing started before the recession — as did the trend in student debt. Just consider these numbers: According to Harvard University’s Joint Center for Housing Studies, the homeownership rate among adults younger than 35 fell by 12% between 2006 and 2011. And as for rising student debt, charts from the Fed show the uptrend is “not entirely recession-related given that has been steady since 2005.”
Record-low interest rates are hardly any help when you don’t have money or can’t get a mortgage.
In theory, though, all that pent-up demand will have to flood the market eventually … right? Well, there are a few issues here. To start, consider the fact that Americans 60 and older still owe $36 billion in student loans, while nearly $100 billion is owed by 50- to 59-year-olds.
Whether they’re paying for their own loans or helping their kids through college, the lesson is clear: Student debt isn’t going anywhere.
It could take a while for that pent-up demand to trickle out — if it does at all. By the time many twenty-somethings have crawled out from under their own pile of debt, they may already be preparing to help their kids deal with the high cost of tuition. The circle of life isn’t such a pretty thing in this case.