Thursday, September 18, 2014
YOLO COUNTY NEWS
99 CENTS

Student debt slows growth as youths spend less

By Annie Lowrey

The anemic economy has left millions of younger working Americans struggling to get ahead. The added millstone of student loan debt, which recently exceeded $1 trillion in total, is making it even harder for many of them, delaying purchases of things like homes, cars and other big-ticket items and acting as a drag on growth, economists said.

Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: Like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.

Gill owes about $45,000 in federal student loans, plus another $40,000 to his parents. That investment in his future has led to a secure job with decent pay and good benefits. But it has left him with tremendous financial constraints, as he faces chipping away at the debt for years on end.

“There’s this anxiety: what if I decided I wanted to get married or have children?” Gill said. “I don’t know how I would. And that adds to the sense of precariousness. There’s a persistent, buzzing kind of toothache around it.”

The Federal Reserve Bank of New York, in a new study, found that 30-year-olds with student loans were now less likely to have debts like home mortgages than 30-year-olds without student loans — even though most of those with student loans are better educated and can expect to earn more money over their lifetimes. The same pattern holds true for 25-year-olds and car loans.

“It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington.

“Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”

The weak economy and tight credit standards remain the main culprits preventing young people just establishing themselves from making major purchases. But millions now face putting a substantial share of their take-home pay toward past debts rather than present needs. Student loan debt leaves them with less money for things like clothes and restaurant meals. And it is even more likely to suppress purchases of more expensive items that need to be bought with credit.

A poor job market is compounding the problem: the educational debt burden of many so-called millennials has sharply increased even as they are being forced to get by on significantly less income than the previous generation — a decline of about 15 percent in real terms since 2000, with much of that drop coming from the recession.

According to calculations by the Pew Research Center, the measure of debt to income for households under the age of 35 has ballooned to about 1.5-to-1 in 2010 from about 1-to-1 in 2001. The composition of that debt has shifted, too: more is tied to student debts, and less to homes.

“Having a lot of student loan debt makes it harder to qualify for a mortgage and harder to save for a down payment,” said Jed Kolko, the chief economist at Trulia.

With the interest rate on some federal student loans set to double on July 1, House Republicans and Senate Democrats have both put forward proposals to try to hold them down. Rep. John Kline, Republican of Minnesota, has proposed tying the rate on several federal student loans to the government’s borrowing costs. Democratic senators, including Dick Durbin of Illinois, have made a similar proposal.

Some have suggested going further: Sen. Elizabeth Warren, Democrat of Massachusetts, has proposed letting students borrow at the same “discount rate” that the Federal Reserve charges to banks, currently 0.75 percent.

Student loan debt is not only constraining young adults, but also, at least in the near term, holding back the recovery itself, some economists say. The shadows might remain even as the economy picks up, by making young workers more cautious when it comes to decisions about their careers and their finances. Millennials might end up buying less expensive homes or more often choosing to rent than previous generations.

“The debt is shifting how much young people can spend, and it can also be a powerful psychological thing as well,” said Selma Hepp, an economist at the California Association of Realtors.

On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.

Indeed, the economy is far more punishing to workers without a college degree. The college-educated earn, on average, 80 percent more than those who only completed high school, a premium that has widened over the last 30 years. Unemployment rates for the less educated are higher, too.

For most young workers, gaining a college degree remains well worth it in the long run, even if it delays some purchases in the near term.

“For an individual going to college and ending up with a lot of debt — you’re still better off,” said Chris G. Christopher of the forecasting firm IHS Global Insight.

There might, however, be a slice of young workers who paid huge sums for degrees that prove less valuable on the job market, saddled by a debt burden that could end up holding them back for decades.

Gill said his education remained a vital investment, even if the debt overhang has for now put white picket fences or a condo with a gleaming view out of reach.

“Sometimes I think: ‘What if I were to buy an apartment?’ ” he said. “It is like asking: ‘What am I going to do when I first land on the moon? What’s the first thought that I will have when I see Earth from outer space?’ ”

Comments

comments

New York Times News Service

.

News

 
Jurors see Marsh questioned by police

By Lauren Keene | From Page: A1

 
Grace Garden: Five years of feeding the needy

By Special to The Enterprise | From Page: A1

 
For the record

By Enterprise staff | From Page: A2

Bike sale on Friday will benefit King High

By Jeff Hudson | From Page: A2

 
Wildfire shows explosive growth

By The Associated Press | From Page: A2 | Gallery

 
Per Capita Davis: What to think

By John Mott-Smith | From Page: A3

International Festival moves to park for fourth year

By Special to The Enterprise | From Page: A3

 
Essay contest underway

By Special to The Enterprise | From Page: A4

Sudwerk Wet Hop Lager plants seeds for area hops rebirth

By Wendy Weitzel | From Page: A4 | Gallery

 
Speakers plumb issues around the Constitution

By Enterprise staff | From Page: A4

Governor signs bill to support state’s ailing bee population

By Special to The Enterprise | From Page: A5

 
Backyard poultry symposium Sunday at UCD

By Tanya Perez | From Page: A5

Forum will answer questions about new license law

By Enterprise staff | From Page: A5

 
Australian pop band Dick Diver plays Third Space

By Enterprise staff | From Page: A5

RepowerYolo hosts solar seminar

By Enterprise staff | From Page: A5

 
Local Girl Scouts are looking for a few good leaders

By Anne Ternus-Bellamy | From Page: A5

Reneau, Silberstein will read their poetry Thursday

By Enterprise staff | From Page: A5 | Gallery

 
Parents host campaign coffees for Archer

By Enterprise staff | From Page: A5

Nominate deserving volunteers for top citizen honors

By Enterprise staff | From Page: A5

 
PG&E, Dixon company unveil truck that can restore power

By Enterprise staff | From Page: A7 | Gallery

$12M earmarked for UCD life sciences center in Chile

By Karen Nikos-Rose | From Page: A7

 
.

Forum

She’s had it with his neglect

By Creators Syndicate | From Page: B5

 
Off-leash dogs are a danger

By Letters to the Editor | From Page: A6

Davis makes the NY Times

By Letters to the Editor | From Page: A6

 
Affordable housing affects health

By Special to The Enterprise | From Page: A6

Choose to wipe out hunger

By Special to The Enterprise | From Page: A6

 
Tom Meyer cartoon

By Debbie Davis | From Page: A6

.

Sports

DHS girls pound Mustangs in the pool

By Enterprise staff | From Page: B1

 
Davis captures final nonleague volleyball outing

By Enterprise staff | From Page: B1 | Gallery

DHS golfers blow past St. Francis

By Enterprise staff | From Page: B1 | Gallery

 
Devils blow out Marauders at Brown Stadium

By Evan Ream | From Page: B1 | Gallery

Youth softball: Hurricanes win one of two slugfests with Woodland

By Enterprise staff | From Page: B2 | Gallery

 
Youth roundup: These Diamonds are forever in the record books

By Enterprise staff | From Page: B2 | Gallery

Baseball roundup: Duffy comes up big for Giants in Arizona

By The Associated Press | From Page: B3

 
Young Devil harriers carry the day

By Enterprise staff | From Page: B3

Davis falls to Vintage in a JV shootout

By Spencer Ault | From Page: B3

 
DHS girls tennis team stunned at Franklin

By Enterprise staff | From Page: B8

.

Features

What’s happening, Sept. 18

By Anne Ternus-Bellamy | From Page: A8

 
Students get into the act with Shakespeare

By Anne Ternus-Bellamy | From Page: A8 | Gallery

Street-smart tips for safe cycling

By Anne Ternus-Bellamy | From Page: A8

 
Eagle Scout project makes life easier for Yolo Basin volunteers

By Anne Ternus-Bellamy | From Page: A10 | Gallery

.

Arts

 
Wineaux: Back and forth in the high and low debate

By Susan Leonardi | From Page: A9

Catie Curtis brings folk-rock ‘Flying Dream’ to The Palms on Friday Sept. 19

By Special to The Enterprise | From Page: A9 | Gallery

 
.

Business

.

Obituaries

Jean Botelli

By Special to The Enterprise | From Page: A4

 
.

Comics

Comics: Thursday, September 18, 2014

By Creator | From Page: B6