Menus Subscribe Search

Follow us


student-debt

(PHOTO: ZIMMYTWS/SHUTTERSTOCK)

The Student Debt Explosion

• August 01, 2013 • 12:00 PM

(PHOTO: ZIMMYTWS/SHUTTERSTOCK)

We celebrate education as the answer to almost all of our economic problems. At the same time, we largely ignore the enormous debt many American students are forced to acquire and the great difficulties they face in landing a job that makes it possible for them to pay it off.

THE STUDENT DEBT PROBLEM
Student debt, as this Bloomberg Businessweek figure highlights, is big and fast growing. The vertical bars represent the percent of Americans who have graduated from college and the blue line is student debt.

debt1

As the figure shows, the share of Americans that have graduated college has steadily grown to a current high of 32 percent. And, student debt has exploded. It now stands at approximately $1 trillion, significantly higher than credit card debt and home equity loans (which are loans secured by a second mortgage). Student debt is now second only to housing debt.

And, as Businessweek also points out, the share of young graduates suffering from debt is also on the rise. In 2003, only 25 percent of 25-year-old graduates had student loans. In 2012, it was 43 percent. Moreover, “[o]ver half of all student debt is held by households whose net worth is under $8,500.”

THE EMPLOYMENT PROBLEM
Of course, debt is only one side of the problem. Lack of good employment is the other. As an Economic Policy Institute (EPI) report explains:

The Great Recession that began in December 2007 was so long and severe, and the government response so inadequate, that the crater it left in the labor market continues to be devastating for workers of all ages…. The weak labor market has been, and continues to be, very tough on young workers: At 16.2%, the March 2013 unemployment rate of workers under age 25 was slightly over twice as high as the national average. Though the labor market is now headed in the right direction, it is improving very slowly, and the prospects for young high school and college graduates remain dim.

The figure below, taken from the EPI report, highlights just how bad the labor market is for recent college graduates. It shows that the underemployment rate for college graduates that are 21- to 24-years-old and not pursuing additional education is still over 18 percent.

debt2

The underemployment measure used includes those officially listed as unemployed as well as those “that either have a job but cannot attain the hours they need, or want a job but have given up looking for work.” This measure does not “include ‘skills/education-based’ underemployment (e.g., the young college graduate working as a barista).” The report cites one study that estimates that in 2000, 40 percent of employed college graduates under the age of 25 worked at jobs that did not require a college degree. That rose to 47 percent in 2007 and 53 percent in 2012.

debt3

The table above, also from the EPI report, gives some sense of the wage pressure that young college graduates face. It shows that their real hourly wages have significantly declined since 2000.

THE ECONOMIC CONSEQUENCES
If you think rising debt and poor employment opportunities cannot end well for graduates and the economy, you are right. A post from the Naked Capitalism blog makes that clear:

Now that student loans are undeniably in bubble territory, the officialdom is starting to wake up and take notice. Evidence that students were taking on so much debt as a group that it was undermining their ability to be Good American Consumers wasn’t enough…. Student debt is senior to all other consumer debt; unlike, say, credit card balances, Social Security payments can be garnished to pay delinquencies. As a result, it has contributed to the fall in the home ownership rate, since many young people who want to buy a house can’t because their level of student debt prevents them from getting a mortgage.

Student loan delinquencies are getting into nosebleed territory. The Wall Street Journal, citing New York Fed data, tells us that student debt outstanding increased 4.6% in the last quarter [third quarter 2012]. Repeat: in the last quarter. Annualized, that’s a 19.7% rate of increase during a period when other consumer borrowings were on the decline. And this growth is taking place while borrower distress is becoming acute. 11% of the loans were 90+ days delinquent, up from 8.9% at the close of last quarter. The underlying credit picture is certain to be worse, since many borrowers aren’t even required to service loans (as in they are still in school or have gotten a postponement, which is available to the unemployed for a short period). And it was the only type of consumer debt to show rising delinquency rates.

This is the new subprime: escalating borrowing taking place as loan quality is lousy and getting worse.

The following chart, from the Wall Street Journal, illustrates the trends noted above. Note the sharp red spike after 2010:

debt4

If the situation wasn’t serious enough, because of a lack of Congressional action, the interest rate on new, subsidized Stafford loans—the loans that the federal government gives to college and university students with financial need—doubled on July 1, from 3.4 percent to 6.8 percent. These loans account for more than a quarter of all new federal student loans.

It sure seems like we need to stop stressing individualistic solutions to our economic problems and start talking about making broader structural changes to our economic system.


This post originally appeared on Sociological Images, a Pacific Standard partner site.

Martin Hart-Landsberg

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

October 24 • 4:00 PM

We Need to Normalize Drug Use in Our Society

After the disastrous misconceptions of the 20th century, we’re returning to the idea that drugs are an ordinary part of life experience and no more cause addiction than do other behaviors. This is rational and welcome.


October 24 • 2:00 PM

A Letter to the Next Attorney General: Fix Presidential Pardons

More than two years ago, a series showed that white applicants were far more likely to receive clemency than comparable applicants who were black. Since then, the government has spent hundreds of thousands of dollars on a study, but the pardons system remains unchanged.


October 24 • 12:00 PM

What Makes You So Smart, Middle School Math Teacher?

Noah Davis talks to Vern Williams about what makes middle school—yes, middle school—so great.


October 24 • 10:00 AM

Why DNA Is One of Humanity’s Greatest Inventions

How we’ve co-opted our genetic material to change our world.


October 24 • 8:00 AM

What Do Clowns Think of Clowns?

Three major players weigh in on the current state of the clown.


October 24 • 7:13 AM

There Is No Surge in Illegal Immigration

The overall rate of illegal immigration has actually decreased significantly in the last 10 years. The time is ripe for immigration reform.


October 24 • 6:15 AM

Politicians Really Aren’t Better Decision Makers

Politicians took part in a classic choice experiment but failed to do better than the rest of us.


October 24 • 5:00 AM

Why We Gossip: It’s Really All About Ourselves

New research from the Netherlands finds stories we hear about others help us determine how we’re doing.


October 24 • 2:00 AM

Congratulations, Your City Is Dying!

Don’t take population numbers at face value.


October 23 • 4:00 PM

Of Course Marijuana Addiction Exists

The polarized legalization debate leads to exaggerated claims and denials about pot’s potential harms. The truth lies somewhere in between.


October 23 • 2:00 PM

American Companies Are Getting Way Too Cozy With the National Security Agency

Newly released documents describe “contractual relationships” between the NSA and U.S. companies, as well as undercover operatives.


October 23 • 12:00 PM

The Man Who’s Quantifying New York City

Noah Davis talks to the proprietor of I Quant NY. His methodology: a little something called “addition.”


October 23 • 11:02 AM

Earliest High-Altitude Settlements Found in Peru

Discovery suggests humans adapted to high altitude faster than previously thought.


October 23 • 10:00 AM

The Psychology of Bribery and Corruption

An FBI agent offered up confidential information about a political operative’s enemy in exchange for cash—and they both got caught. What were they thinking?


October 23 • 8:00 AM

Ebola News Gives Me a Guilty Thrill. Am I Crazy?

What it means to feel a little excited about the prospect of a horrific event.


October 23 • 7:04 AM

Why Don’t Men Read Romance Novels?

A lot of men just don’t read fiction, and if they do, structural misogyny drives them away from the genre.


October 23 • 6:00 AM

Why Do Americans Pray?

It depends on how you ask.


October 23 • 4:00 AM

Musicians Are Better Multitaskers

New research from Canada finds trained musicians more efficiently switch from one mental task to another.


October 22 • 4:00 PM

The Last Thing the Women’s Movement Needs Is a Heroic Male Takeover

Is the United Nations’ #HeForShe campaign helping feminism?


October 22 • 2:00 PM

Turning Public Education Into Private Profits

Baker Mitchell is a politically connected North Carolina businessman who celebrates the power of the free market. Every year, millions of public education dollars flow through Mitchell’s chain of four non-profit charter schools to for-profit companies he controls.


October 22 • 12:00 PM

Will the End of a Tax Loophole Kill Off Irish Business and Force Google and Apple to Pay Up?

U.S. technology giants have constructed international offices in Dublin in order to take advantage of favorable tax policies that are now changing. But Ireland might have enough other draws to keep them there even when costs climb.


October 22 • 10:00 AM

Veterans in the Ivory Tower

Why there aren’t enough veterans at America’s top schools—and what some people are trying to do to change that.


October 22 • 8:00 AM

Our Language Prejudices Don’t Make No Sense

We should embrace the fact that there’s no single recipe for English. Making fun of people for replacing “ask” with “aks,” or for frequently using double negatives just makes you look like the unsophisticated one.


October 22 • 7:04 AM

My Politicians Are Better Looking Than Yours

A new study finds we judge the cover by the book—or at least the party.


October 22 • 6:00 AM

How We Form Our Routines

Whether it’s a morning cup of coffee or a glass of warm milk before bed, we all have our habitual processions. The way they become engrained, though, varies from person to person.


Follow us


Politicians Really Aren’t Better Decision Makers

Politicians took part in a classic choice experiment but failed to do better than the rest of us.

Earliest High-Altitude Settlements Found in Peru

Discovery suggests humans adapted to high altitude faster than previously thought.

My Politicians Are Better Looking Than Yours

A new study finds we judge the cover by the book—or at least the party.

That Cigarette Would Make a Great Water Filter

Clean out the ashtray, add some aluminum oxide, and you've (almost) got yourself a low-cost way to remove arsenic from drinking water.

Love and Hate in Israel and Palestine

Psychologists find that parties to a conflict think they're motivated by love while their enemies are motivated by hate.

The Big One

One company, Amazon, controls 67 percent of the e-book market in the United States—down from 90 percent five years ago. September/October 2014 new-big-one-5

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.