Policy Feature Issue: Student Loan Debt

As nearly 1.8 million students graduate from American colleges and universities this year, it should be a time for celebration and excitement.[1]  Yet, most students are now saddled with extraordinary debt and are entering one of the weakest recoveries in history.  For many, it is not inconceivable that they will be navigating uncharted territory as it relates to their prospects for a financially secure future.  Unemployment among recent college graduates remains significantly higher than the national average.  Moreover, the burden of student loan debt represents a major hurdle for recent graduates to overcome in order to achieve financial stability.

Facts You Need to Know:

  • Students in the Class of 2013 will graduate with an average of $30,000 in debt, the most debt of any graduating class in history.[2]  However, 2013 graduates will not hold this record for long: rapidly rising tuition nationwide will burden each subsequent class with more debt than previous classes.
  • In addition to being saddled with significant debt, recent college graduates experience a comparatively higher rate of unemployment.  According to a Bureau of Labor Statistics (BLS) report, 12.6% of recent college graduates are unemployed in the United States.[3]  For unemployed college graduates, the burden of debt has an even greater effect on their financial well-being.
  • Another major problem is the issue of underemployment among recent college graduates.  According to a 2013 poll conducted by Accenture, 41% of recent college graduates said that they were underemployed relative to their education.[4]  284,000 recent college graduates hold jobs that pay minimum wage or less.[5]  Many of these graduates are simply unable to pay off their debt.

Why is Student Loan Debt Important?

  • Student loan debt has the potential to undermine economic growth.  This year, collective student loan debt topped $1 trillion.[6]  More troubling, however, is the fact that wage growth has virtually stagnated despite an increase in average student debt.[7]
  • The burden of student loan debt is also affecting borrowing in other markets.  Students who borrow and accumulate debt are far less likely to take the financial risks and spend the money necessary to spur economic growth, including the purchase of cars and homes.  According to a recent report, for the first time in ten years, 30-year-olds[8] without a history of loans are more likely to have a mortgage than those with a history of student debt.[9]  Large student debts are seen as a primary factor in this trend.
  • An increasing debt-to-salary ratio affects the amount of disposable income available to college graduates.  According to calculations from the Pew Research Center, the debt-to-salary ratio has increased from 1:1 in 2001 to 1.5:1 in 2010.[10]  Disposable income is necessary to promote economic growth and create jobs.  Debt repayment will crowd out consumer spending, further contributing to stagnant growth.

[8] 30 is the median age for first-time homebuyers.