More Income, More Debt, Less Wealth: Student Loan Poverty

In case you missed it Bloomberg.com reported at the end of last week on student loan poverty: “College Debt Leaves Generation X Grads Less Wealthy Than Parents.”

student loan bubble

Most college-educated 30- and 40-somethings earn more than their parents did at the same age, yet they’re saving less. Student debt is partly to blame.

While 82 percent of Generation X Americans with at least a bachelor’s degree earn more than their parents did, just 30 percent have greater wealth. A smaller share of workers without college education — 70 percent — have surpassed their parents’ incomes yet almost half had higher wealth, according to a Pew Charitable Trusts report released today.

Lackluster saving among the cohort, those born between 1965 and 1980, has come as student-loan balances persist into middle age. Generation X’s financial straits could come with economic aftershocks, making it difficult for parents to afford college for the next generation and forcing workers to hold onto jobs longer or lower their living standards as they age.

Some of the blame may belong to credit cards but student loans seem more significant:

While credit cards also played a role, student loans are a big contributor to that debt load: Four in 10 upwardly income-mobile college grads hold education debt, with a median balance of $25,000, according to the Pew report.

This isn’t just another expose of the college loan scam, but it is also a lesson in the folly of debt spending in general as a strategy for “stimulating” the economy. The tuition and textbook costs “the college-industrial complex” has generated for the present will cause a crash in the future.  By going into debt, today’s students are destroying the savings that would enable them to send their children to college. There is no way to avoid a price collapse.

And this is true of all government debt-as-stimulus schemes. Our government wants to spend money forever so it sponsors economic sophistry. Money and “prestige” go to intellectuals who invent justifications for what politicians want to do. But just like what is happening to these college graduates, the debt load eats up the possibility of future spending. The money that should be saved and invested will instead go to pay bondholders—only interest and never principal.

What seems to be unthinkable to everyone is living on less now. But why not? If the coming generation is going to “lower their living standards as they age” anyway, then why not put up with the reduction while you are young and healthy in order to save for the future? What is the virtue of starting out in life with a crippling amount of debt—so much that your net worth never exceeds that of your parents? Better to simply start off poorer and build up wealth debt-free.

As I’ve mentioned before, there is also a demographic drag from this debt-slavery system:

Kate Curtis-Bozio, 31 and from Woburn, Massachusetts, is among millennials struggling to gain financial security as she works to pay back the $44,000 in student loans she took out while pursuing her master’s degree.

Financially, we can’t even plan to have any children right now, because we know how expensive it is for childcare,” said Curtis-Bozio, who is married. She works in crime analysis and mapping at a local police department during the week, and is a restaurant hostess on weekends in order to make her monthly loan payments.

“I worked there throughout grad school, and I was planning on getting rid of it when I got a full-time job,” she said. “Once I started paying back, I realized I can’t afford to get rid of this job.”

They can’t afford childcare and can’t afford to stay home with the kids. We are not only going to be poorer, but there will be a population shortage. This will hasten the collapse of other government debt pyramid schemes, like the welfare state.

What needs to happen? Prices need to go through the floor and many of the millions employed as college staff and faculty need to be reassigned to more needed industries. There is no way to get to a better economy except to suffer through some economic pain.

The government will do all it can to pretend that college bailout schemes are really student aid. Don’t fall for it.