Policy Feature Issue: The Economy and Young People – The Real Impact For the nearly 2 million young people who graduated college in 2013, the economic environment remains unfriendly. College graduates continue to struggle finding work, let alone a job in a career that accurately reflects their educational experience. Unemployment among youth remains above the national average. While the number of college graduates continues to increase, the average salary among them is stagnant. Moreover, the higher costs of education are increasing the average young person’s student loan debt. Although action was taken to address student loan interest rates, there are still significant barriers to the economic well-being of our nation’s youth, including a weak economic recovery incapable of providing high-quality jobs. Facts You Need to Know: This year, collective student loan debt topped $1 trillion.[1] More troubling, however, is the fact that wage growth is flat despite an increase in average student debt. This year, average hourly earnings have risen by 52 cents, a 2.2% increase from December, 2012.[2] According to a 2012 report by The Institute for College Access and Success (TICAS) Project on Student Debt, nearly two–thirds of college seniors in 2012 had loan debt, averaging $26,600 per borrower.[3] However, a study of the class of 2013 by Fidelity reported that 70 percent of students graduated with debt, averaging $35,200 per borrower.[4] The rapid increase in the cost of education has left students with a larger debt, yet the job market has done little to improve the ability of graduates to pay it off. In addition, while a large portion of young college gradu7ates are able to find work, a large number are underemployed.[5] According to a 2013 poll conducted by Accenture, 41% of recent college graduates said that they were underemployed relative to their education.[6] According to a 2012 Department of Labor report, 284,000 of these young people earn at or below minimum wage.[7] Many of these graduates are simply unable to pay off their debt. Why is this Issue Important? Disposable income is necessary to promote economic growth and create jobs. Yet, a constantly increasing debt-to-salary ratio limits the amount of disposable income available to graduates. According to calculations from the Pew Research Center, the debt-to-salary ratio has increased from 1:1 in 2001 to 1.5:1 in 2010.[8] Debt repayment will crowd out consumer spending, further contributing to stagnant growth. The burden of student loan debt also has the potential to affect borrowing patterns in other markets. Students who borrow and accumulate debt are far less likely to take the financial risks and spend the money necessary to spur economic growth, including the purchase of cars and homes. According to a recent report, for the first time in ten years, 30-year-olds.[9] without a history of loans are more likely to have a mortgage than those with a history of student debt.[10] Large student debts are seen as a primary factor in this trend. Finally, the poor economic environment has led to a sharp rise in student loan payment delinquencies. According to a 2013 report from the Federal Reserve Bank of St. Louis, 11.7 percent of student loan balances were delinquent for 90 days or more, up from 11 percent in the third quarter of 2012.[11] The report argues that, because a vast majority of the loans in question are backed by the federal government, they represent a “huge potential liability for U.S. taxpayers”.[12] Not only does this affect the potential for robust growth in consumption, it makes the economy susceptible to potential further increases in delinquency if the U.S. undergoes another major economic shock.
Posted on: Fri, 20 Sep 2013 13:43:59 +0000
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