Student Debt Woes Could Magnify Economic Problems
Americans are getting their debt under control…that is, unless you count the pesky little problem of student debt. Since household debt peaked in late 2008, student loan debt has grown by $303 billion to $914 billion, while other types of household debt fell by $1.6 trillion, according to data released today by the New York Federal Reserve Bank.
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Student debt is not a large portion of household debt—as of the second quarter of 2012, student loans made up 8 percent of household debt, compared to the 72 percent contributed by mortgage debt—but it could pose widespread economic problems both now and in the future for a generation that’s already struggling.
“Even if the economy recovers, students graduating now or a couple years previous to this, as well—their earnings potential has been hit by the lackluster employment situation,” says David Nice, associate economist at Mesirow Financial, a Chicago-based financial services firm.
People under 30 account for nearly one third of all student debt in the U.S., and younger workers are having an especially difficult time in the job market, with an unemployment rate of 13.5 percent for workers ages 20 to 24, and 9.3 percent for workers 25 to 29 (only unadjusted numbers are available for 25-to-29-year-olds). When these workers are unemployed now or underemployed, working in retail or waiting tables out of college, it means a lifetime of lower pay, says Nice.
“Each raise is impacted even for those who do find a job, starting off at a lower wage. Then over time, their earnings potential is always tied to that salary,” he says.