March 10, 2013
HIGHER EDUCATION BUBBLE UPDATE: A Dangerous ‘New Normal’ in College Debt.
As college tuitions rise and state and local funding for higher education falls — along with median household incomes — students are taking on staggering levels of debt. And many can’t find jobs that pay well enough to quickly pay off the debt. This has long-term implications for our society and our economy, as that debt begins to affect when and if young people start families or enter the housing market.
The student debt crisis may become a dangerous “new normal,” according to a report this week by the nonprofit State Higher Education Executive Officers Association. . . .
An analysis last month by Donghoon Lee, an economist at the Federal Reserve Bank of New York, found that “student debt is the only kind of household debt that continued to rise through the Great Recession” and is now the “second largest balance after mortgage debt.”
According to Mr. Lee, student loan debt is fast approaching a trillion dollars, up from less than $400 billion in 2004, and both the number of borrowers and the average balance per borrower have “increased by 70 percent between 2004 and 2012 (7 percent per year).”A September Pew Research Center report found that “a record one-in-five households now owe student loan debt.”
That report also found that student loan debt as a share of household income was 24 percent for families in the lowest income quintile. That was at least twice the share of any other quintile.
As the report put it, “The relative burden of student loan debt is greatest for households in the bottom fifth of the income spectrum, even though members of such households are less likely than those in other groups to attend college in the first place.”
And many of those graduates can’t find work or are underemployed, and they struggle to pay back their own personal mountain of debt.
Yes, the higher education bubble has increased income inequality, burdened lower- and middle-class families with excessive debt, and made social mobility harder by requiring a college degree even for entry-level jobs that don’t really require it. This isn’t news if you’ve been reading my stuff, but it’s nice to see other people noticing.