This confluence of economic trends makes Congress' impending decision on student-loan rates all the more critical for today's college students. New federal student loan borrowers may see their interest rates double unless lawmakers strike a deal to extend a 2007 law that cut the rates. The law expires today.
"You could have generations that never get in the economic mainstream," says Ted Beck, president and CEO of the National Endowment for Financial Education. "If you never get into the whole U.S. economic system because you've been held back by too much early debt ... we could have a lot of people who just never really come anywhere near their potential."
A report out last month from the Consumer Financial Protection Bureau suggests myriad ways in which student-loan debt may be having a ripple effect on the economy. Based on more than 28,000 comments submitted by consumers and industry leaders, the report found that debt held by millions of Millennials may be forcing this generation to:
1) Put off home ownership
2) Divert money from retirement accounts
3) Impede the ability to take small-business loans
4) Forgo securing car loans
Though hard data linking student-loan debt to a delay in these financial commitments are elusive, personal finance experts say that when one is saddled with any kind of debt, economic lives can grind to a halt. The consequences of massive student-loan debt—a trillion dollars and counting—could threaten the standard of living for this generation and harm the country's economic competitiveness.
Debt vs. Income
Millions of college students are graduating into a slowly improving economy in which many still find themselves unemployed or underemployed. Class of 2012 graduates faced an unemployment rate of 13.3 percent, though not seasonally adjusted, according to data from the Bureau of Labor Statistics, though the rate drops significantly the longer students are out of school. The national rate, which is seasonally adjusted, is 7.6 percent.
The Project on Student Debt found that two-thirds of 2011 college graduates—the most recent year for which data are available—graduated with an average student loan debt of $26,600, or $27,500 when adjusted for inflation. Contrast that with 1993, when less than half of students graduated with debt, and those who did averaged $9,350,according to data from the Project on Student Debt. In today's dollars, that's about $15,000.
Even so, Mark Kantrowitz, publisher of Edvisors.com, which runs more than a dozen websites about planning and paying for college, says today's debt load is manageable.
"Most borrowers graduate with an affordable amount of debt," he says, citing a statistic from the National Association of Colleges and Employers survey that says the average starting salary for a 2013 graduate is almost $45,000, exceeding how much most borrowers owe. "Your total student loan debt at graduation should be less than your annual starting salary. Where there are problems is when your debt is out of sync with your income."
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That's the case for Jacob Childerson, who has about $60,000 in debt while making about $28,000 a year as an admissions counselor and recruiter for his alma mater, Southern Illinois University in Edwardsville, Ill. Despite graduating with a degree in international business and speaking fluent Spanish, he hasn't been able to find a job in his field.
A year out of college, Childerson says he feels like he can't grow up. He and his wife have about $92,000 in student loan debt combined, and the two are unable to buy their own place. They share a car because they can't qualify for a second car loan, which means carpooling to work and passing up better job opportunities that might be out of the way for one of them.
"We can't start a family, we can't buy a house, we can't sort of settle down, I guess," Childerson says. "We can't have that quintessential American dream."
Over Memorial Day weekend, Childerson and his wife, Jennifer, who has a master's degree in social work, moved in with her parents in St. Louis, allowing the couple to put the $850 a month they had been paying in rent toward their loans. A week earlier, Jennifer had to turn down a job offer because the pay increase wouldn't have covered the costs of buying a second car for her commute.
"We don't feel like we can make any of those other steps until we've got this student loan debt knocked out," Childerson says. "It's just a noose that keeps getting tighter and tighter."
A Broader Economic Impact
Young adults who find themselves living at home—either because they never left or moved back—are probably contributing to a decline in economic activity by not forming their own households, says Mark Zandi, chief economist at Moody's Analytics.
"The more homes that are built, the more things that are purchased to put in those homes," Zandi says. "If you don't have households forming, the economy is going to struggle."
From 2005 to 2012, the percentage of men ages 25-34 living in their parents' home rose from 13.5 percent to 16.9 percent, according to Census Bureau data. For women of the same age group during the same time period, the rate of those living at home went from 8.1 percent to 10.4 percent, the data show.
Zandi suspects that unemployment is the driving factor in keeping young people in their parents' homes.
"(Student loan debt) may mean something down the road when 20-somethings are in their early 30s and thinking of buying a single-family home," he says. "But I don't think it's significantly impacting their ability or willingness to rent. Kids want to strike out on their own."
Rohit Chopra, student loan ombudsman for the Consumer Finance Protection Bureau, says the group's report is not a scientific survey attempting to pinpoint direct cause and effect between student loan debt and other financial decisions. But he says, "There (are) enough warning signs."
Though Kantrowitz cautions that one can't draw definitive conclusions about the effects of student loan debt, he says it "does seem reasonable" that it's impeding economic progress for many in this generation.
As loans become the go-to way to finance education in the USA, experts say, this generation could be the canary in the coal mine for what the nation might see going forward. Today, Millennials are paying the price, but the loan crisis, they say, has a much longer tail.
"If student debt is a roadblock to economic opportunity, that really undermines a philosophy of how America has moved forward and prospered," Chopra says. "So many Americans have taken risks to start small businesses, to buy a home, and that has been a traditional way in which our economy has moved forward and people have achieved economic milestones."
There's also the potential for a cascading effect for those who have so much debt that they're on 20-year repayment plans, rather than standard 10-year plans, Kantrowitz says.
"That means they will still be paying back their own student loans when their children enroll in college," he says, noting that the cycle will probably then repeat: They will be unable to save for their children's education, so those kids will be forced to take loans and graduate with even more debt.
In 2008, the most recent year for which there is data, roughly one-third of bachelor's degree recipients, or about 400,000 students, had enough student loan debt to qualify for a 20-year repayment plan for federal loans, Kantrowitz says, based on his own analysis of National Postsecondary Student Aid Study data.
'His Debt Is my Debt'
Student loan debt isn't just a financial impediment; it also has broad social implications and the potential to do "significant damage to families," Beck says, as couples hold off on marriage and children.
Mannino and Prowse of Berkley, Mich., would like to get married but are nervous about combining their debt. Mannino owes about $34,000 after graduating last year from Oakland University in Rochester, Mich. Once Prowse finishes his master's degree in environmental science at the University of Michigan in 2015, he'll have close to $100,000 in loans from both undergrad and grad school.
"I want to be with him, and he's 26 and wants to get married, and it's just hard to make that commitment," Mannino says, "because then his debt is my debt. It's just really frustrating because that has to come before everything else even though we really care about each other."
Student loan debt may be subsequently delaying both marriage and homeownership as couples wait on taking either of those steps together.
The National Association of Realtors says that most first-time home buyers rely on savings to cover a down payment and that student loan debt may be prohibiting young prospective home buyers from saving enough.
"The housing market is recovering, but it's recovering without the first-time buyers," says Lawrence Yun, chief economist for NAR. "Right now first-time buyers comprise about 30% of the market. Normally it'd be closer to 40% or 45%."
Student loan debt obligations could also be affecting the ability of younger buyers to qualify for a mortgage, Yun says. "The mortgage underwriter considers that another required monthly payment, which means the larger the student loan, the less likely you are to qualify," he says.
A Collective Vulnerability
Pilnick of Hoboken, N.J., says her student loan payments are keeping her from taking on a mortgage and buying an apartment.
She doesn't regret taking out $63,000 in loans to get her master's degree in corporate communication at New York University because it led to a higher-paying job in her field. Her minimum monthly payment for her loans is about $540, yet she's paying $1,000 a month in an effort to be debt-free faster.
"When I turned 28 I felt like the clock was ticking," Pilnick says of becoming a homeowner, but she can't afford both a mortgage and higher loan payments.
All of the college graduates interviewed by USA TODAY acknowledged that student loans were a burden they knowingly took on. But today's high schoolers and their families need to be savvier about the way they choose to pursue higher education, says Bob Mackey, president and CEO of Housing and Credit Counseling, a non-profit organization based in Topeka and a member agency of the National Foundation for Credit Counseling.
"More and more students should be looking at the kinds of areas of emphasis in college that appear to be, after graduation, more employable," Mackey says. He recommends that more students consider working during college to offset their expenses or taking time off before going to college to build up savings.
"There are a lot of things that these kids can do to keep the debt down," Mackey says, such as starting at a community college that is less expensive and taking advantage of grants and scholarships.
The consequences of a rising debt load may not be immediately noticeable in the years just after students graduate, but the long-term impact could be crushing.
"It's not one of those things that matters a lot in any given year, but over a couple decades or generation or two, it matters a great deal," Zandi says. "It means that they'll have less spending power. It means that they'll be less financially prepared to send their own kids to college or for their own retirement down the road. It just makes for a less healthy economy and a more vulnerable one."
—By USA Today's Hadley Malcolm