The Fed “Discovers” Student Debt Is Killing Millennials

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We need a national student debt strike.

After much study and contemplation, the Olds have concluded Millennials aren’t buying houses because they had to take on an unprecedented level of student loan debt thanks to Boomer and Gen-X disinvestment from affordable higher education:

The Federal Reserve has linked rising student debt to a drop in homeownership among young Americans and the flight of college graduates from rural areas, two big shifts that have helped reshape the U.S. economy.

The effect of student debt on the economy has been debated in recent years, as the total has soared to $1.5 trillion, surpassing Americans’ credit-card and car-loan bills. Congress and various White House administrations have pointed to federal student loans as a key way for Americans to pay for college and boost their career earnings. Critics have said the debt is damaging the economic prospects of a generation of Americans.

Despite their observations, the Fed is still unwilling to state inconclusively that student debt is hamstringing a generation of Americans:

The Fed research published Wednesday didn’t offer a verdict on those assertions. But it showed that student debt is linked to key life decisions for some—including whether to buy a home and where to live.

What’s obvious to us is controversial to our elders. I suppose that’s been the youth’s rally cry for ages, but what’s remarkable is the fact that our generation is pushing 40 and we’re still struggling under the weight of our elders’ bad decisions.

If you’re over 40 and thinking Millennials are complaining about frivolities, consider these stats:

Homeownership among people ages 24 to 32 fell 9 percentage points, to 36% from 45%, between 2005 and 2014, the Fed said. While many factors affected the homeowner rate, the Fed said 2 percentage points, or about a fifth, of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.

400,000 Millennials not being able to buy homes may seem like small beans, but that number’s only going to grow as housing prices skyrocket and wage decrease. And it’s not just about buying a home—the Fed points out that the combination of high student debt level combined with housing instability is directly related to the cascading effects of our generation’s inability to pay off their debts, afford childcare, build good credit, qualify for mortgages, make down payments, and relocate to better paying jobs. It sucks being part of Generation Debt . . .

This crisis isn’t limited to urban housing markets, either. The Fed filed a second paper showing student debt is driving Millennials out of rural communities. Why? Life in rural communities is nasty, brutish, and pays poorly.

Half of all student-loan borrowers in rural areas moved to urban areas within six years of taking on their debt, according to the study, which used a sampling of data from a credit-rating firm and Social Security numbers to track the borrowers.

Student debt has bad implications for the rest of the economy and could explain why the recovery has been so soft for so long.

The reports shed light on two of the economy’s biggest puzzles in recent years. The housing recovery has been historically weakand the fortunes of rural communitieshave lagged behind those of urban areas.

. . . .

Skylar Olsen, director of economic research and outreach at Zillow, said student loans are combining with high rents and rising home prices to make it difficult for younger households to save for down payments. “It’s a one-two punch,” she said.

Over the past couple of years, lenders have been making a larger share of loans to borrowers who spend more than 45% of their monthly pretax income on their mortgage payment and other debt, including student loans. The mortgage industry is experimenting with various initiatives to address concerns that student loans make it difficult for millennials to purchase their first homes.

Considering all of its the negative effects on local and national economies, will we see student debt relief and increased investment in affordable public education and housing? Sorry to be the bearer of bad news, but . . .

The new Fed paper studied borrowers during a period—2005 to 2014—when delinquencies on student loans soared. Since then, many borrowers have enrolled in plans that reduce their monthly bills by setting payments as a share of their incomes. These income-driven repayment plans have been linked to a decline in delinquencies. The Fed research doesn’t address whether this development has diminished the effects of student debt on homeownership, which has picked up among young Americans in the past year.

As long as Millennials keep restructuring their debt, making their payments, and taking on mortgages, all the while doing little to actually paying down their total debt load, don’t expect any meaningful changes. This is exactly why we need a general student debt strike:

Modest fixes are not enough. Consider the interest rate tweaks or income-based repayment plans offered by the Obama administration. They lighten the debt burden on some — but not everyone qualifies. They do nothing to address the $165 billion private loan market, where interest rates are often the most punishing, or how higher education is financed.

Americans now owe $1.2 trillion in student debt, a number predicted by the think tank Demos to climb to $2 trillion by 2025. What if more people from all types of educational institutions and with all kinds of debts followed the example of the Corinthian 15, and strategically refused to pay back their loans? This would transform the debts into leverage to demand better terms, or even a better way of funding higher education altogether.

The quickest fix would be a full-scale student debt cancellation. For students at predatory colleges like Corinthian, this could be done immediately by the Department of Education. For the broader population of students, it would most likely take an act of Congress.

. . . .

This might sound like a lot, but it’s a small price to pay to restore America’s place on the long list of countries that provide tuition-free education.

To get there, more groups like the Corinthian 15 will have to show that they are willing to throw a wrench in the gears of the system by threatening to withhold payment on their debt. Everyone deserves a quality education. We need to come up with a better way to provide it than debt and default.

Student debt cancellation would mean forgone revenue in the near term, but in the long term it could be an economic stimulus worth much more than the immediate cost. Money not spent paying off loans would be spent elsewhere. In that situation, lenders, debt collectors, servicers, guaranty agencies, asset-backed security investors and others who profit from student loans would suffer the most from debt forgiveness.

Don’t just vote. Organize and strike!

 


Agreeing Loudly is proud to help its contributors gain compensation for their labor. Please consider helping kuyaalb by supporting his Patreon campaign. You can also follow him on Twitter @kuyaalb.

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