Jack & I have been involved in the housing industry for many, many years now. It’s always interesting to read articles about what is affecting it from a larger scale. We keep up to date on these things, but I came across this article recently that I found really insightful. College debt is having more and more of an impact on young people’s decisions to take out mortgages.
The graduating class of 2014 had been officially named “the most indebted class ever” (policmic.com). And according to the Wall Street Journal and data compiled by analyst Mark Kantrowitz, the average loan-holding 2014 college graduate will have to pay back $33,000. That’s up from around $31,000 in 2013 and under $10,000 in 1993!! The same study indicated that average student loan debt has increased every year for at least the past two decades.
What were you doing in 1993? The average percentage of college students taking out loans in that day and age was 46%. That percentage has made a sharp vertical to 70%. More and more kids have been accumulating debt.
Luckily for college students, the education they earn is still a worthwhile investment. College grads are by and large more employable and earn significantly more than their counterparts without a degree. Accordingly, the problem arises when you consider the ever widening rift between average post-college salaries and how much those individuals go into debt to earn them. For example, the average student loan debt jumped 35%, adjusting for inflation, while the median salary dropped 2.2% between 2005 and 2012.
The common “rule” is that you should never borrow more for college than you can expect to make in your first year of employment. That gets tricky. For the time being, matters seem manageable — according to 2012 data, the median salary for a someone holding a B.A. was $46,900, while the “average student loan balance” for people under 30 stood at $21,000. But things are definitely getting worse, and recent and future graduates will increasingly have to shoulder the burden.
The worst part is that this is no-good news for everyone around. Along with the growing numbers of Broke Phi Broke grads, recent evidence suggests that America’s $1.1 trillion student loan debt crisis is messing up the economy. But what isn’t these days, right? The New York Times reported a valid correlation between average debt and the plummeting number of 27- to 30-year-olds taking out home mortgages.
It does make sense… The more money you owe, the less you have to spend on a down payment. Considered on a grander scale, the pattern of fewer mortgages is bad news for economic growth as well. The U.S. has been dependent on the housing industry as an instrumental tool to recover from past recessions. However, since 2008, it’s made less than half its normal economic contribution which is partially attribute to the decreased investments from young people.
So what can be done? The federal government seems pretty committed to its slew of multi-billion dollar investments, from our massive prison system or the trillion dollar F-35 fighter jet program. So, “rocking the vote” probably won’t get anyone too far. Colleges are content continuing to jack up tuition costs like it’s going out of style. Generally, this in an issue that most do not seem to care about. Which seems outrageous since it’s an issue that related to most families, like my own. My kids will be going off to college at some point, and I don’t even want to think about the cost of what it will be then. The worst news yet is that the class of 2014 won’t hold the “most indebted” title for long. The class of 2015 will certainly be overtaking that title, and then the class of 2016, and 2017, and so on and so forth.
–Jeff