Here’s a quick headline sample from the past few months:
I don’t think that any of these pieces address this point: College debt (i.e., student loans) will be THE long-term drag on the economy for the next generation.
Think about it.
Home building is one of the largest economic drivers in our country. Home building is driven largely by the formation of young families. Young families have to take on a large piece of very longterm debt to buy that first house. Their credit worthiness (and therefore their ability to get a mortgage) is tied to an income vs. debt ratio.
Many of these young families are made up of high school grads, with some college or none at all. These days, these families likely have two wage earners (if they’re lucky) with a combined household income of maybe $30-60k per year. These families may qualify for a loan large enough to buy a small starter home, but they would be living on the edge, financially speaking. Most likely, these families will rent for a large proportion of their adult lives. As renters, they’ll buy fewer and smaller appliances, less furniture, and generally be less help to the overall economy.
College grads, on the other hand, used to be anticipated as high future wage earners with significant disposable income available at young ages. They would form families, buy nice homes, acquire material goods, and help the economy grow.
Have you figured out the flaw in this old picture for today’s economy? If not, allow me to share: These young grads already have ‘mortgages’ in the form of college loans. Many of them owe more than the debt necessary to buy their first starter home. If they bought a home, the equivalent mortgage debt would be payable over 30 years.
These kids are just out of school, and many are already burdened with the equivalent of 30 year mortgages! Oh, and did I mention that if they’re lucky enough to find decent jobs, most of them will be getting entry-level salaries of $25-35k per year?
Do the math. If nothing changes, given all the above plus a lower ratio of young people to retirees, this could be a mighty long recession.
Related Stories (Links added April 4, 2012):
- Young, Educated, Indebted Americans Unable To Purchase Homes,By C. Cryn Johannsen (3:41 PM Feb 13th, 2012)
- Why Is The Student Loan Crisis Being Ignored?, By C. Cryn Johannsen (6:56 AM Mar 28th, 2012)
Grandson, welcome to the new world, the new economy, and hopefully not a long recession.
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