If you are in college, or you recently graduated, or one of your children is in either of those categories, then last week’s news from the Pew Research Center won’t surprise you.
The center reported on Wednesday that a record one in five U.S. households owed student debt in 2010. That’s more than double the share from just 20 years ago. The number is likely to rise when the last couple of years’ numbers are known.
Unfortunately, the one-in-five statistic isn’t the worst figure in the study. It’s this: The amount of student loan debt, as a percentage of household income, is hitting the poor the hardest.
Unless you’re Republican presidential candidate Mitt Romney, and you write off half of the country as lazy and entitled, this is truly devastating for the future growth of the country’s economy.
It’s a double whammy of bad economic news. First, it’s a sign that fewer people can afford the best path to climb from one economic class to another. Second, it sends a signal to businesses that fewer Americans will have disposable income to spend, limiting demand for goods and services.
According to Pew, families in the lowest of five U.S. income brackets who are paying for college for themselves or their children now owe 24 cents for every $1 of income on student loan debt. These are people who make less than $21,044 a year. The graduates who are fortunate enough to get a job owe nearly a quarter of their income to debt before they can buy food, clothing and transportation.
And the parents who are trying to make sure their children have better opportunities than they did?
They’re stuck. They’re the housing bubble waiting to repeat itself, with the nation’s poor and middle class unable to invest, leaving businesses less likely to grow.
The same Pew study shows that the nation’s wealthy see their children as having the same opportunities they did. They, too, are increasing their student loan debt, doubling it as a percentage of their overall income.
This is the statistic that makes Mr. Romney’s now infamous “47 percent” speech so damning: The wealthy, too, see a college education as a smart way to improve future income opportunities. They are also depending on the government to help them reach their goals. But as a percentage of income, the wealthiest fifth of Americans are only spending 2 cents of every $1 on debt, up from 1 cent in 2007. That’s couch cushion money.
Every class of Americans — rich, poor, middle class — should have the opportunity to obtain a college degree, whether that degree comes from St. Louis Community College or Harvard University. The No. 1 key to restarting the nation’s economic engine is to develop the workforce of the 21st Century.
A recent Brookings Institute study reinforced the work of other researchers, identifying the very real gaps between the high-tech jobs that are fueling the economy and the shortage of workers with the proper education to fill those jobs.
If getting ahead is the American dream, and education is the key to getting ahead, an entire class of Americans is being priced out of the dream.
America succeeds when its middle class is vibrant and has money to spend. When those in the middle fifth of income in the U.S.—people making around the country’s median income of $50,054, are paying 12 cents of every $1 they earn on student loan debt, there is not enough money left over to invest in the country’s future. In 2007, according to Pew, that number was a more manageable 7 cents on the dollar.
Americans take on this debt not because they feel entitled to anything, but because they’re willing to sacrifice for their families. The student loan bubble can’t grow much more before it bursts.
The nation’s leaders — everyone from the president and Congress to state lawmakers and university trustees — must make a firmer commitment to making college affordable. Take some air out of the bubble. Give students and parents some breathing room.