For all the talk from the GOP about their fear that our national debt will crush the younger generation under the weight of our American “credit card” debt, the truth is–and has been since the crash during the waning George W. Bush’s disastrous Presidency– the lack of a vibrant economy and the jobs that come with it is the larger looming disaster for our children, not the national debt.
Everything I’ve written for the last two and a half years has borne this fact out. What has also been evident is the success of distractions and misdirection that the GOP has relentlessly used to keep the voting public from focusing on the real slight-of-hand they’ve been attempting to keep their “audience” mesmerized.
Student Debt not National Debt is the Silent Killer
But the problem has a distinctive characteristic in the US, where the weak job market has collided with record levels of educational debt – about $25,000 per graduate on AVERAGE. Together, they pose a hazard of enormous proportions to the future earning power of young Americans and could have severe, long-lasting effects on US growth.
The share of American 18- to 24-year-olds who were employed fell to 54 per cent last year, the lowest since the labor department began tracking data in 1948, according to the Pew Research Center. The share of that age group who are in college has risen, but the researchers say this only partly explains the drop. The jobless rate for Americans age 16 to 24 is above 16 per cent, more than twice the national rate.
And in 2010, the wave of Republicans that swept into office proclaimed vociferously that “jobs were their number one concern” while they proceeded to push social issues (anti-gay, anti-women, Voter IDs, austerity) harder and with such frequency that it set all-time records from coast to coast.
The most votes brought to the floor after John Boehner took over as Speaker of the House of Representatives? 37 unsuccessful votes to repeal Obamacare and 40 votes to rename Post Offices.
The US government has made some moves to ease the student debt burden, accelerating a program that cuts federal loan payments for low-income borrowers and forgiving unpaid balances after 20 years instead of 25. It is also easier now for nearly 6m borrowers with more than one federal loan to consolidate their debt.
The White House has pushed other measures to make college more affordable – efforts that could appeal to young voters, who played a key role in Barack Obama’s 2008 election victory. Parts of the stimulus package passed in the wake of the financial crisis expanded tax credits for tuition, and last month Congress struck a deal to prevent interest rates on some new student loans from doubling.
Unfortunately, supporters say such efforts are not enough given the scale of the problem. Some are even urging the government to offer income-based repayment plans for private loans. But the passage of these measures are unlikely.
It doesn’t take a Harvard graduate to see that high student loan burdens are hindering the US recovery. Debt burdens will delay graduates from US universities from purchasing cars, homes, and even discourage marriages and raising families. All of which will inhibit near-term economic growth, not to mention have a chilling effect on students exiting high schools who would have otherwise considered higher education.
With more young people living at home, the rate of new household formations – a leading driver of housing demand – is now commensurate with the 1940s, according to a Harvard study. Just 600,000 to 800,000 new households were formed each year from 2007-2011, compared with 1.2m to 1.3m a year in the previous four years.
One More in a Long Line of Disappearing American Dreams
In a long line of American Dreams disappearing faster than the ice mantle that used to reflect the sun’s rays back into space rather than being absorbed into the earth’s surface, Americans under the age of 35 have lost more than a third of their net worth since 2001, compared with a 27 per cent decline for all ages, according to the Bureau of Labor Statistics.
Making up that ground lost, while earning less in today’s depressed labor market will be next to impossible without some stimulating occurrence for the stagnating economy. I addressed the reasons for the Stock Market’s seemingly bizarre run-up during such a weak growth period in the U.S. economy in a previous article, but regardless of the confounding Markets, median income for those under 35 dropped 10.5 per cent from 2007 to 2010 – more than any other age group – compared with a 7.7 per cent overall decline.
While a university degree still secures a chance at a higher income than a high school diploma, the median income of college graduates fell nearly 10 per cent from 2007 to 2010, according to the BLS, compared with a 5 per cent fall for high school graduates.
Young Americans are well aware of their precarious place in today’s economy, with only 16 per cent in a Rutgers University survey of recent university graduates believing their generation will have greater financial success than the one before. About half of the students surveyed had full-time jobs, and 40 per cent of the college graduates with loans reported putting off big purchases such as cars and homes.
This leaves a firmer economic recovery closely tied to the fortunes of a generation gripped by high levels of debt – and falling incomes from the jobs that require the education the debt buys.
I can quite imagine that having student loan repayments thrown into a recent graduate’s planning for the future is going to make things exceedingly more difficult.
Although they knew that they would be in debt upon graduation–and that it would take years to pay it off–it’s one thing to know that, and a completely different thing when, five years later, you’re actually looking at that debt square in the face with no end in sight and not a single raise since graduating from college.
Harvey A. Gold