By Amy Morse and Elise Perkins
New data show that the record $1.2 trillion in student loan debt, which exceeds consumer credit card debt, is negatively impacting Millennials and the broader economy. Students graduating in 2014 are leaving school with an unprecedented average of $33,000 in debt. This debt overhang is impacting standards of living, delaying homeownership, marriage, car purchases, impacting credit scores, savings, and other consumer spending. We believe public policy change is necessary to help the Millennial generation, and future generations, ease the financial burden of college costs. By focusing on the needs of the future workforce for sustained, long-term economic growth, we will provide greater opportunity for all American students.
And as you consider reform – remember, we are not our parent’s generation.
That’s not to say the Baby Boomers didn’t have their fair share of economic troubles. As two college graduates (and one with a graduate degree), we realize how fortunate we are to have the opportunities that higher-education affords; and understand that we agreed to pay back the loans given to us. However the cost of higher education has increased well over 500% since 1985 and the average debt burden has doubled over the past two decades. Boomers with a high school diploma have earned 77% of the income relative to a college graduate, but today that number has fallen to 62%. Millennials without a college degree are much more likely to be living in poverty (22%) compared to the Boomer generation (7%). Access to a college degree is paramount in today’s economy. MIT’s David Autor’s recent report exposed the significance of the “falling bottom” in education inequality, revealing that the collective gains based on college education outnumbered the concentration of wealth of the 1%. We know this truth to be self-evident – as expensive as it is - a college degree is a necessary down payment for the American Dream.
But high costs, fewer opportunities, and record debt are converging on Millennials and erupting in the perfect storm: the most-educated generation with declining mobility in the midst of a fragile recovery. In addition to the personal debt burden (disproportionately worse for the economically vulnerable), higher unemployment, stagnant wages, and postponing major investment choices, Millennials will also inherit the $17 trillion national debt burden that remains unresolved by a deadlocked Congress.
Tackling student debt has dominated recent news with a new executive order from President Obama and a failed Senate proposal. President Obama’s executive order expands Pay-As-You-Earn options (capping monthly payments to 10% of income) to an additional five million borrowers. However, despite some bipartisan support, the Senate failed to overcome a filibuster to allow debate on Senator Elizabeth Warren’s (D-MA) Bank on Students Emergency Loan Refinancing Act, which would allow 25 million existing borrowers to refinance their loans to new, lower market rates. Congressional failure to pass meaningful reform for existing borrowers, particularly given historically low interest rates, is not acceptable for Millennials or for the broader economy.
The Senate Budget Committee heard testimony in early June about the economic drag due to the ballooning student debt burden, which cited data from Treasury Secretary Jacob Lew, The Federal Reserve’s Federal Open Market Committee, The Financial Stability Oversight Council, and the automobile and financial services industries. Their collective diagnosis: high student loan obligations equal reduced consumer spending that will depress demand.
The value of a college degree is significant to U.S. competitiveness as well as state economies. Contrary to what many believe, only half of first-time students graduate from college within six years. More focus needs to be paid to the relationship between cost and completion, especially given the economic burden on those who fail to receive a credential, but go into debt. The Committee for Economic Development’s (CED) recent call-to-action on postsecondary education reform cited an important study of broad-access institutions, which contribute the majority of the American workforce: “Increasing graduation rates at New York City’s six community colleges by just 10 percentage points for the class that entered in 2009 would, over a decade, be worth $689 million to the city and state in combined income, economic activity, and public investment value. Over two decades this amount would grow to $1.4 billion and over three decades to $2.1 billion.”
Report after report confirms what American adults aged 18-34 already know: we do not have the same economic outlook as our parents did. For a generation that makes up a quarter of the U.S. population, and accounts for more than $1 trillion, in U.S. consumer spending, that’s a problem.
In fact, a report from UBS calls Millennials “the most financially conservative generation to come around since the Great Depression.”
Congress needs to pay more heed to our voices. The Millennial generation is more than the “selfie generation” – we are the most educated, racially tolerant generation in the history of this country. We are optimistic, entrepreneurial in spirit, digital-natives who will ultimately become the next generation of leaders—and sooner than we realize.
In the next five years, Millennials will make up a third of the U.S. adult population. Our inability to achieve the American Dream – because of the dual debt burdens - might lead to resentment instead of the optimism associated with American ingenuity. At the very least, it appears to be pulling Millennials away from traditional political party allegiance.
Reform options deserve serious consideration from Congress. Reform proposals should also recognize the changing demographics of future students. The majority of public school students in seventeen states are low-income, more than previous generations. Apprenticeship programs, expanding and reforming Pell Grants, expanding the income-based repayment to all students, expanded refinancing options, expansion of alternative credentialing models, greater subsidies for broad-access institutions, innovative savings programs for low-income students, more focus on need-based aid among academic institutions, more transparency among academic institutions regarding completion and costs, among many more are all viable options. In addition, more research is needed on why students drop out before completing college, and how communities can promote greater opportunities to students to transition effectively into the workforce.
Short-term decisions on Capitol Hill have only addressed components of this problem, stifled economic growth, and put our financial futures in jeopardy. We must consider the whole picture: the societal, economic, and cultural impacts that the combined individual and national debt will have on Millennials.
Luckily, a number of Millennial-focused groups have emerged offering a national voice for this generation including: Generation Progress, Millennial Action Project, The Can Kicks Back, and Young Invincibles. The voice of these organizations must be seriously considered by lawmakers.
Higher education offers the promise of opportunity in America, where hard work and merit-based achievements lead to innovation and growth. Unfortunately, ballooning higher education costs will undermine access for future students and depress opportunity for others. Time is no longer on our side. Lawmakers should use the 2014 and 2016 election cycles to rebuild the trust of our generation by addressing the crushing debt burden and cost of postsecondary education.
Amy Morse is Associate Director of Programs, and Elise Perkins is Director of Marketing and Communications at the Committee for Economic Development. Both women are Millennials.