Student debt is ballooning, and dragging our economy down in the process, according to a new report by the Federal Reserve Bank of New York.
In 2002, 25 percent of 25-year-olds had student debt. In 2012, that number jumped to 42 percent, with the average amount of debt ringing in at $20,326. The result? Young people are much less likely to buy a home or car.
For a long time, people with student debt were actually more likely to take out a home mortgage or auto loan than those who didn't because, as college graduates, they made more money. That all changed after the start of the Great Recession.
One possibility is that younger Americans burdened by heavy student loans are simply unwilling to take on further debt. Perhaps they're worried about their future job and income prospects, especially in this dismal economy. (Remember, students who are unlucky enough to graduate during the recession typically have lower lifetime earnings.)
Another (related) possibility is that lenders are becoming stingier. There's decent evidence for this: The study finds that younger Americans with student debt have seen their credit risk scores plummet relative to those without. Banks and other lenders seem to be scared away from people with student loans — especially since delinquency rates are rising. [Washington Post]
As Bloomberg's Kathleen Howley points out, many students were forced into student debt because, after the housing crash, their parents could no longer take out big home equity loans to pay for college. This vicious cycle has resulted in the home ownership rate dipping to 65.4 percent, its lowest level since 1997.
In his budget, President Obama proposed tying student loans to the rate on a 10-year Treasury bond, which, according to Businessweek, would bring subsidized, unsubsidized, and grad school loan rates down significantly (provided the economy doesn't pick up). He also wants to expand the program that caps loan payments at 10 percent of a person's income.
Of course, that all depends on the White House and Congress actually agreeing on something. For now, it looks like 20-somethings aren't likely to get out of debt anytime soon.
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- 43 TV shows to watch in 2014
- The one thing the New Atheists get right about religion
- How to be the most productive person in your office — and still get home by 5:30 p.m.
- The uncomfortable truth in The Giving Tree
- The simple trick to making better decisions in every aspect of life
- Syrian women know how to defeat ISIS
- 3 horrific inaccuracies in Homeland's depiction of Islamabad
- Why 2014 may be as good as it gets for the Republican Party
- 6 things the happiest families all have in common
- Why America needs more billionaires
Subscribe to the Week