Notice from the Wrongologist:
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What’s Wrong Today:
About
a million students will graduate from college this month. As they walk with their
diplomas, they face a familiar worry: Will I get a job? Will I get a job I
actually want? Will it let me pay off my student loans? Will my income be enough for me to cover all of my additional bills and finances? Could I turn to somewhere like Qik Car Title Loans to apply for a loan based on the value of my car if I find that I’m ever short of money? Will this help me to keep on track of my current finances?
The
US Department of Labor (DOL) announced that unemployment among 2013 graduates is at 10.9%, down from
13% for graduates in 2012. That’s still weaker than the economy overall, and
worse than it was pre-recession.
What’s
more, those who are working have increasingly settled for jobs outside their
fields of study or for less pay than they’d expected. CNN
reports that:
college graduates were stuck last year working at or below the federal minimum
wage of $7.25 an hour, more than double the numbers of minimum wage-earning
college grads in 2007
So,
high unemployment, plus low pay for many who DO find jobs, and then there is the
high debt load many graduates have taken on.
Wolf
Richter of the Testosterone
Pit reports, student debt outstanding has soared 362% to $1.1 trillion
since 2003, during a period when mortgage debt rose “only” 65% to $8.2 trillion
and credit card debt actually declined by 4.2% to $660 billion. Wolf
asks a great question: How will the
burden of servicing the increasing student debt level impact these recent
graduates’ efforts to buy a home?
All
the signs point to them having great difficulty. The proportion of first-time
buyers – the single most important sign of a healthy housing market – has been
shrinking for years. This could simply be down to the fact that graduates don’t have the finances to be able to pay for a house of their own. Luckily, people who have a degree in the medical field may be eligible to qualify for physician loans to help them when it comes to buying a property of their own. But others aren’t so lucky and will have to look for an alternative in the housing market.
Over
70% of the students who are sitting through a commencement speech this spring
have student loans. They will start their careers (if any) with an average
student loan balance of $33,000.
Even
when adjusted for inflation, that’s about twice as much debt as 20 years ago.
Back
then, only 43% of students graduated with student loans. However, after decades
of sustained tuition and fee increases, working your way through college in
four years has become a difficult task. And every year, it gets worse: The
Class of 2012 was the most indebted ever. Then the Class of 2013 took that
dubious honor, only to be trumped by the Class of 2014.
Next
year, that honor will go to the Class of 2015.
The
equation might not have gone so horribly wrong if each class of graduates had
seen their median incomes move in line with their average student debt. That
didn’t happen:
Between
2005 and 2012, (the last year for which the data are available), the
inflation-adjusted average student loan balance of graduates under 30 years old
grew by 35%; while the median annual income adjusted
for inflation for college graduates between 25 and 34 years old has declined by 2.2%.
According to the Department of Numbers blog, in
2012, 36.09% of households were renters, up 3 percentage points since 2008, at the
start of the recession.
For the US, they calculate median
monthly gross rent as a fraction of median household income at 20.65% in 2012.
They
also have an analysis of how much
of a mortgage loan someone can borrow, given a monthly mortgage payment equal
to 30% of the median household income, with a 30 year fixed-rate loan. Their
estimate of the maximum amount a
household could borrow to purchase a home in February 2014 was $257.7k,
while the median US home asking price was $280.4k.
Another disparity is that the current median household income for the United States is $51,371,
yet the overall average starting salary for Class of 2013 new college graduates
was $6k lower, at $45,327, according to the September 2013 Salary
Survey by the National Association
of Colleges and Employers (NACE), a non-profit group.
Now,
the Class of 2014 takes their record-setting pile of student loans and their skimpy
wages out into the American economy. They will become the next generation of
first-time home buyers. And on top of student loans, they’re facing higher
interest rates and higher prices for real estate, forces which will suffocate some
first-time buyers.
Something
has to give. Not raising the minimum
wage in line with inflation is based on a conservative principle that says the
profits of companies are more important than the needs of the working poor.
And surely, paying workers just enough to provide food and basic shelter,
instead of paying them living wages, helps the conservatives’ goals
immensely.
Today’s
grads may have to blow up the system if they are to see change that works for
them. Perhaps they already have: They’re not buying houses, they’re renting in
urban environments, they’re not buying cars, and they’re not getting cable TV.
In short, they are adopting a significantly different lifestyle from that of
their parents. They have to. Rent payments and a subway/bus pass instead of a
mortgage and a car.
That’s not the American dream.
These
kids are part of a generation that will have difficulty building a middle class
lifestyle because finding that middle class wage is harder than ever. At the
same time, due to growing inequality and economic insecurity, the earnings and
status gap between those with a college education and those without is growing,
so aspiring students and parents will
remain willing to pay the price in order to reach for a middle class life.
And
though student loan programs may have been designed with good intentions, they
now simply aid and abet the colleges in extracting ever more money from the
future lives of students.
Student
debt levels are high because college costs way more than it used to cost. And state
governments are not subsidizing public colleges the way they used to.
If only the masters of the universe would take off
their blinders and see that they are wiping out the future for many kids.
Short term gains today at the expense of tomorrow
will cost the country royally.
Funny about this. Republicans cry about the kids when it comes to Social Security and Medicare (do they not know that if we reduce these, the kids will have to pick up the slack?) But they are oblivious to the debt load that makes it far more difficult for young folks to start lives as adults.
Funny too, we built colleges in the 50s and 60s. After the Vietnam war ended, enrollements were reduced (demographics) and over time state aid to state colleges was reduced. For a bunch of reasons costs increased naturally as formerly modest colleges (from Montclair State to Wright State) became real universities. With costs up, aid down, tuitions rose. The only way to afford college became via loans. A terrible idea. It is one thing, for a kid at a top university to borrow $10 k in his last year – he or she is on the way already – it is quite another for a poor kid to both work 30 hours a week and borrow – as is common. They often don’t graduate – or if they do, they are older and really not able to get the first rate college hire jobs. Sorry -that the way.