The anemic economy has left millions of younger working Americans struggling to get ahead. The added millstone of student-loan debt, which recently exceeded $1 trillion in total, is making it even harder for many of them, delaying purchases of things like homes, cars and other big-ticket items and acting as a drag on growth, economists said.
Consider Shane Gill, a 33-year-old high school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: Like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.
Gill owes about $45,000 in federal student loans, plus another $40,000 to his parents. That investment in his future has led to a secure job with decent pay and good benefits. But it has also left him with tremendous financial constraints as he faces chipping away at the debt for years on end.
“There’s this anxiety: What if I decided I wanted to get married or have children?” Gill said. “I don’t know how I would. And that adds to the sense of precariousness. There’s a persistent, buzzing kind of toothache around it.”
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The Federal Reserve Bank of New York, in a new study, found that 30-year-olds with student loans are now less likely to have debts like home mortgages than 30-year-olds without student loans – even though most of those with student loans are better educated and can expect to earn more money over their lifetimes. The same pattern holds true for 25-year-olds and car loans.
“It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington. “Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”
The weak economy and tight credit standards remain the main culprits preventing young people just establishing themselves from making major purchases. But millions now face putting a substantial share of their take-home pay toward past debts rather than present needs. Student-loan debt leaves them with less money for things like clothes and meals. And it is even more likely to suppress purchases of more expensive items that need to be bought with credit.
The poor job market is compounding the problem: The educational debt burden of many so-called millennials has dramatically increased even as they are being forced to get by on significantly less income than the previous generation – a decline of about 15 percent in real terms since 2000, with much of that drop coming from the recession.
On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.
Indeed, the economy is far more punishing for workers without a college degree. The college-educated earn, on average, 80 percent more than those who completed only high school, a premium that has widened over the past 30 years. Unemployment rates for the less educated are higher, too.