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Ear to the Ground

Student Loans a Drag on Graduates and the Economy

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Posted on May 11, 2013
State Farm (CC BY 2.0)

Crippling student debt is keeping hundreds of thousands of Americans from spending money on goods and services in the real economy, which is constraining the nation’s recovery.

A new Federal Reserve Bank of New York study found that 30-year-olds with student debt were less likely to have other debts, like home mortgages, than their peers without it. The same was true for 25-year-olds and car loans.

Millennials are being forced to get by on 15 percent less income than the previous generation. This means less money to spend on restaurant meals, clothes and other purchases.

The Pew Research Center says the debt to income ratio for households run by people under 35 was 1.5 to 1 in 2010, up from 1 to 1 in 2001. Contrary to previous generations, the debt held by the younger one is more tied to student loans than homes.

—Posted by Alexander Reed Kelly.

The New York Times:

Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.

Mr. Gill owes about $45,000 in federal student loans, plus another $40,000 to his parents. That investment in his future has led to a secure job with decent pay and good benefits. But it has left him with tremendous financial constraints, as he faces chipping away at the debt for years on end.

“There’s this anxiety: what if I decided I wanted to get married or have children?” Mr. Gill said. “I don’t know how I would. And that adds to the sense of precariousness. There’s a persistent, buzzing kind of toothache around it.”

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