Budget Blog

Getting a college degree is a worthwhile investment, and studies have found that a post-secondary degree or credential is essential in climbing the economic ladder.  According to the Census, lifetime earnings for workers with a college degree are about $1 million higher than those with only a high school diploma.  The Bureau of Labor Statistics has found that college graduates have significantly lower unemployment rates than those who either did not complete college or never attended in the first place. And more and more, a college degree will be critical for America’s economic competitiveness. The Center on Education and Workforce at Georgetown University estimates that by the end of the decade, nearly two-thirds of all jobs will require at least some college education.

But while higher education is an economic imperative, to afford college, many Americans have to turn to student loans. Americans have more than a trillion dollars in student loan debt.  Student loan debt has rapidly increased in recent years. The Bipartisan Policy Center found that the average student loan debt carried by people under 30 rose by 60 percent in the past seven years. The average college graduate in 2012 had a student loan debt level of nearly $30,000, according to the Institute for College Access and Success. The Wall Street Journal noted that the class of 2014 is “the most indebted class ever” with an average debt approaching $33,000. Adjusting for inflation, that is almost twice as much as borrowers had to pay back only 20 years ago. And more young households are facing significant student loan debt. A Pew study found that “a record 37 percent of young households had outstanding student loans in 2010, up from 22 percent in 2001 and 16 percent in 1989.”

The burden of student loan debt can make it harder for borrowers to get a foothold in the economy.  Pew found that young college-educated households have seven times the net worth of households that have debt. Debt-free households are more likely to have a home and retirement savings than households trying to manage monthly payments for student loans. Borrowers with high levels of student loan debt face narrower career choices than those without a debt burden, with studies showing they are less likely to pursue public service careers, such as teaching.

That debt isn’t just hurting borrowers. It can also negatively impact the U.S. economy. While young people are typically an engine of economic activity, as they start their careers and set up households, many college graduates can’t save up for a down payment on a home. High monthly payments on student loan debt can prevent many people from qualifying for a mortgage. That can impact the housing industry, which depends on first-time home buyers as a key consumer group.

This year, the New York Federal Reserve found in its Household Debt and Credit Report that not only did Americans hold more student loan debt than auto or credit card debt, but that the share of delinquent student loan balances exceeded the share of delinquent credit card balances, auto loans, mortgages, and home equity loans. The St. Louis Federal Reserve reported that “given that the number of student loans and the overall amount of student loan debt have ballooned in recent years, student loans represent a potentially severe problem for the United States.”

Tomorrow, the Committee will hold a hearing on student debt and its impact on borrowers and the economy. You can read more about the hearing here.