Student Loan Debt Could Cripple Economy For Decades
February 5, 2013 by Sam Rolley
The price of a college education has been climbing at a substantially higher rate than inflation for years; meanwhile, the value of a college degree has been falling. That’s why thousands of debt-laden college graduates are facing the worst economic bust to plague the United States since the housing bubble burst.
A recent report from the Center for College Affordability and Productivity, entitled “Why Are Recent College Graduates Underemployed?”, refutes the oft-repeated theory that college educated Americans have the potential to earn substantially higher lifetime incomes than their uneducated peers. In fact, the report indicates that many college-educated Americans are woefully underemployed because “the growth of supply of college-educated labor is exceeding the growth in the demand for such labor in the labor market.”
From the report:
- About 48 percent of employed U.S. college graduates are in jobs that the Bureau of Labor Statistics (BLS) suggests requires less than a four-year college education. Eleven percent of employed college graduates are in occupations requiring more than a high-school diploma but less than a bachelor’s, and 37 percent are in occupations requiring no more than a high-school diploma;
- The proportion of overeducated workers in occupations appears to have grown substantially; in 1970, fewer than one percent of taxi drivers and two percent of firefighters had college degrees, while now more than 15 percent do in both jobs;
- About five million college graduates are in jobs the BLS says require less than a high-school education;
- Comparing average college and high-school earnings is highly misleading as a guide for vocational success, given high college-dropout rates and the fact that overproduction of college graduates lowers recent graduate earnings relative to those graduating earlier;
- Not all colleges are equal: Typical graduates of elite private schools make more than graduates of flagship state universities, but those graduates do much better than those attending relatively non-selective institutions;
- Not all majors are equal: Engineering and economics graduates, for example, typically earn almost double what social work and education graduates receive by mid-career;
- Past and projected future growth in college enrollments and the number of graduates exceeds the actual or projected growth in high-skilled jobs, explaining the development of the underemployment problem and its probable worsening in future years;
- Rising college costs and perceived declines in economic benefits may well lead to declining enrollments and market share for traditional schools and the development of new methods of certifying occupation competence.
Meanwhile, over the past five years the average amount of student loan debt accrued by college students has risen by 30 percent to $23,829. More than half of student loan holders have currently deferred student loan payments, which is only a temporary solution for struggling degree holders.
Some economists expect the American economy to struggle for decades under massive student loan debts because student loans are almost impossible to discharge in bankruptcy and the government will collect by garnishing the paychecks and tax refunds of those who fail to pay. Furthermore, being underwater on student loans can harm a person’s credit score, making it more expensive for them to get loans for homes or vehicles.
As more and more Americans struggle to pay back student loans while underemployed, the economy as a whole will suffer, since the purchases of first homes and other durable goods are put off indefinitely.