Student Debt and the Waning American Dream by The Globalist

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The Globalist Quiz > Global Education Student Debt and the Waning American Dream
By The Globalist \| Saturday, June 30, 2012

Now that summer has arrived, a whole new crop of U.S. college graduates are looking for jobs. They are also facing the prospect of having to begin repaying thousands of dollars in student loans — debt that, in the aggregate, some experts believe could trigger the next financial crisis. The Globalist Quiz wonders: What are the facts about U.S. student debt?

Answers:

A. Student debt has become one of the largest pools of U.S. debt

B. More students move back in with their parents after graduation

C. Student debt levels hinder the U.S. economic recovery

D. The debt burden keeps growing

A. "Student debt has become one of the largest pools of U.S. debt" is correct.

Even in a nation known worldwide for tolerating high levels of personal debt, it is hard to imagine that student debt has become one of the largest pools of U.S. consumer debt.

And yet, at just over $1 trillion, student debt is now the second-largest source of consumer debt in the United States — larger than the debt outstanding on both credit cards and car loans. One reason why student debt is so high is that, unlike credit card, mortgage and other personal debts, these debts are usually not dischargeable in a personal bankruptcy.

B. "More students move back in with their parents after graduation" is correct.

Ever since the onset of the financial crisis, more students move back into their parents' house after graduation. Almost six million Americans aged 25 to 34 live with their parents (as of 2011).

This is a new trend in the United States, but is quite common in many other countries, especially around the Mediterranean in Southern Europe and Northern Africa. There, it is not just a function of the lack of jobs, but also of inadequate housing supply.

C. "Student debt levels hinder the U.S. economic recovery" is correct.

The United States has long stood out in the world for its high level of homeownership. College graduates, with higher starting incomes and better long-term financial prospects, found it easy to buy a "starter home" early in their working careers.

With the average graduating student's debt at $25,000, that path to homeownership is becoming more remote. The problem is not just the hefty debt students carry upon graduating, but that U.S. banks have tightened their underwriting requirements for new mortgages.

This not only makes it much harder for young people in the United States to acquire a home or apartment, it also depresses a classic route to economic recovery — "jumpstarting" the housing sector — even though U.S. homes are currently the most affordable since records were first kept in 1970.

D. "The debt burden keeps growing" is correct.

More and more U.S. college graduates are falling behind on repaying their students loans. That, in turn, increases their overall indebtedness as late-payment penalties and other fees are tacked on.

According to the Federal Reserve Bank of New York, as many as one in four graduates who have begun paying back loans are behind on their payments. Some students take refuge in going back to school in order to defer repayment. But even deferred loans continue to rack up interest, leading to an even greater burden of debt.