The Next Debt Crisis Could Be Student Loans

They’re called the Boomerang Generation. These are the millions of young Americans that have been forced to move back in with their parents since the economic downturn of 2008. 

Currently, more Americans are struggling to pay off their student loan debt than any other type loan. A new report by the New York Federal Reserve warns that student loan defaults– those loans more than 90 days without payment– rose to 11.3 percent for the last 3 months of 2014. While all other types of loans showed lower delinquency rates, student loan defaults are now the highest non-mortgage form of household debt and that should be cause for significant concern. 

Since 2007, the amount of student loans has more than DOUBLED and student loan debt now makes up more than 1.2 trillion dollars.

In just the past ten years, the average amount of student debt has increased 74 percent. College is more expensive than it ever has been. The rising cost of going to college has consistently beat the rate of inflation since 1978 and when you compare it to the Consumer Price Index, which has increased 279 percent since then, the numbers are astounding. The price of college has increased a staggering 1,225 percent in the same period. 

Not only is college more expensive, more people are taking out loans for education than ever before. The number of borrowers since 2004 has gone up 92 percent. 

The rising number of loans currently in default is alarming, but when taken into account with the current unemployment and labor-participation rates of Millenials, the outlook becomes that much more grim.

A college degree is simply not worth what it was two decades ago. Many of these young adults entered the workforce at the worst possible time, in the midst of economic volatility and high unemployment rates, conditions that typically lead to workers accepting less pay due to the lack of decent-wage jobs available. According to research conducted by Yale University, a lower starting salary can lead to less income for decades.

Bloomberg has reported that Millenials are also more likely to hold onto lower paying jobs for longer than previous generations due to the current job climate. This has a detrimental effect all the way down the corporate ladder. These over-qualified workers settle for lower-paying jobs which increases the competition against low-end workers, forcing those workers into even lower paying jobs or worse, unemployment. 

Unlike tax debt or credit card debt, student loan debt is ineligible for bankruptcy forgiveness which means that defaulted loans eventually mean wage garnishments. For a generation that is already underpaid and underemployed, a wage garnishment makes them even less likely to contribute to the economy.

Billionaire and Dallas Mavericks owner Mark Cuban warned last summer that student loan debt and the Boomerang Generation was holding back the economy: “It’s holding back housing, it’s holding back apartment building, it’s holding back car sales, it’s holding back clothing sales… anything that’s not an absolute necessity, kids can’t spend their money on.” Cuban said. 

He went further to suggest that the real impact will be felt among institutions of higher education: “It’s inevitable at some point there will be a cap on student loan guarantees. And when that happens you’re going to see a repeat of what we saw in the housing market: when easy credit for buying or flipping a house disappeared we saw a collapse in the price of housing, and we’re going to see that same collapse in the price of student tuition, and that’s going to lead to colleges going out of business.” If that does happen, it’s going to lead to a lot more over-qualified, and educated Americans looking for work. 

This entry was posted in Precious Metals News and tagged , , , , , . Bookmark the permalink.

Comments are closed.