In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are employed will have fewer resources for saving and investing than their predecessors. Young people are living with their parents longer, which helps conserve their limited resources but likely places a strain on their parents’ budgets.
Bryce Covert has more:
While all debt can weigh heavily on a borrower’s shoulders, there are reasons that student debt is one of the most pernicious kinds. Again from the WSJ, “student debt can carry interest rates as high as those on subprime mortgages, and it’s much harder to shed in the event of trouble. There’s no house to give back to the bank, and even bankruptcy rarely offers relief.” In fact, unlike credit card and mortgage debt, these loads can’t be discharged in bankruptcy.
It does have some paybacks. In 2009, households headed by people with at least a B.A. had 101% more annual pre-tax income than less-educated households. But recent grads may not be seeing quite the same boost — the average salary for holders of new bachelor degrees will be $36,866 this year, down almost $10,000 from $46,500 in 2009, according to the Collegiate Employment Research Institute. This may be in part due to the fact that college grads, while supposedly better suited to getting new jobs because they have fresh skills and can move where the openings are, have seen their unemployment rate double along with the labor force as a whole. In fact, the Federal Reserve Bank of San Francisco found, “[t]he labor market for recent college graduates is equally weak or even weaker than the overall market.” On top of that, it found that an increasing number of grads are taking part-time work, leaving them neither fully employed nor unemployed, simply underemployed.
If the US has some above-trend catch-up inflation in the range of 3-5% over the next few years, that would be a great deal for young people. It would increase their pay and help them pay off their debts faster. But the Fed appears ready to choke off any wage increases. This would be a disaster for young people’s future earnings and economic prospects.