It’s
“painfully” obvious that the gains in the job market, touted as a wild success
by Donald Trump, are a patchwork of low-pay part-time/gig work mixed with
high-pay STEM/business jobs for those with the right degrees and experience.
When you drill down and look at additional variables – looking at
neighborhoods, race, family structure – it becomes clear that for those outside
of hot job markets, racial minorities and those already on the lower economic
rungs of the social ladder, the job picture is not particularly rosy.”[Job] gains
mostly bypassed residents — often African American — who had been born into
poverty.
“That
is among the findings of a study led by Raj Chetty, a Harvard economist whose
newly launched Opportunity Atlas found no association between job growth and
economic mobility for poor residents of the affected areas…
“President
Trump has pledged to save neglected towns through ‘jobs, jobs, jobs.’ His
Democratic rival in the 2016 election, Hillary Clinton, asserted that
government investments to foster hiring would help create ‘an economy that
works for everyone.’ Governors and mayors have traded tax breaks for pledges by
companies to create jobs in distressed communities.
“But
Chetty and his colleagues, whose atlas examined communities down to census
tract levels, found that economic mobility hinges more frequently on other
factors. A person’s race, for example, plays a pivotal role. Economic mobility
varied widely among people of different races who lived in the same
neighborhoods in Los Angeles or Houston, among other places.
“Additionally,
living in neighborhoods with many two-parent families improves the likelihood
of emerging from poverty — even when someone was raised by a single parent.
Mobility is often greater for children who come from neighborhoods with
higher-priced housing. And it’s generally better when a high proportion of
adults in a neighborhood are working, according to the analysis by Chetty,
economists Nathaniel Hendren of Harvard and John Friedman of Brown University,
and researchers Sonya Porter and Maggie Jones of the Census Bureau.” Los
Angeles Times, October 19th.
But
even for those with advanced degrees, too many are mired in too much student
debt with job prospects and salaries insufficient to allow both independent
living and to pay off those loans. The 2005 modification of our bankruptcy laws
makes it exceptionally difficult to avoid student loan debt. With a surplus of
willing lenders, over the past several decades, colleges have accelerated their
tuition increases accordingly, creating a vicious spiral for students and their
families.
The
general economy favors those who bought homes before the most recent explosion
in the real estate marketplace but punishes recent grads who are even further
pummeled with hardship with a world of exorbitant rents in urban centers where
the jobs are. All these pressures are stymying these younger workers from being
able to participate the once-normal progression into the consumer economy, and
that hurts our overall long-term growth big time.
“It’s
2018 and Americans are more burdened by student loan debt than ever. In fact,
the average student loan debt for Class of 2017 graduates was $39,400, up six
percent from the previous year.
“You’ve
probably heard the other scary statistic: Americans owe over $1.48
trillion in student loan debt, spread out among about 44 million
borrowers. That’s about $620 billion more than the total U.S. credit card debt.”
StudentLoanHero.com, May 1st. What’s missing here? For a rather
large segment of recent grads, a well-paying job with a solid future. And
interest keeps running. According to the Department of Education, over the past
two years average private student loan interest rates have risen from 5% to
6.6%.
“While
Wall Street and President Trump tout news of a booming stock market and low
unemployment, college students may be quick to roll their eyes. The improved
economy has yet to mean higher wages for graduates already struggling to pay
down massive debt, let alone ease the minds of students staring down the barrel
of six-digit loan obligations yet to come.
“Federal
student loans are the only consumer debt segment with continuous cumulative
growth since the Great Recession. As the costs of tuition and borrowing
continue to rise, the result is a widening default crisis that even Fed
Chairman Jerome Powell labeled as a cause for concern.
“Student
loans have seen almost 157% cumulative growth over the last 11 years. In
contrast, auto loan debt has grown 52% while mortgage and credit card debt
actually fell about 1%, according to a Bloomberg Global Data analysis of
federal and private loans.
“All
told, there is $1.5 trillion in student loans out there (through the second
quarter of 2018), making it the second-largest consumer debt segment in the
country, after mortgages, according to the Federal Reserve. And the number
keeps growing.
“Student
loans are being issued at unprecedented rates as more American students pursue
higher education. But the cost of tuition at both private and public
institutions is touching all-time highs, while interest rates on student loans
are also rising. Students are spending more time working instead of studying.
(Some 85% of current students now work paid jobs while enrolled.)
“Experts
and analysts worry that the next generation of graduates could default on their
loans at even higher rates than in the immediate wake of the financial crisis… Student
loan debt currently has the highest 90-plus-day delinquency rate of all
household debt. More than 1 in 10 borrowers is at least 90 days delinquent,
while mortgages and auto loans have a 1.1% and 4% delinquency rate,
respectively, according to Bloomberg Global Data. While mortgages and auto
loans have experienced an overall decrease in delinquencies since 2010, student
loan delinquency rates remain within a percentage point of their all-time high
in 2012…
“Students
attending for-profit colleges and community colleges represented almost half of
all borrowers leaving school and beginning to repay loans in 2011. They also
accounted for 70% of all defaults…
“Those
most at risk of delinquency tend to be those who’ve incurred smaller debts,
said Kali McFadden, senior research analyst at LendingTree. Graduates with
six-figure degrees that are valued in the marketplace — such as post-graduate
law or medical degrees — usually see a good return on their investment.
“‘There’s
a systemic problem in the student loan market that doesn’t exist in the other
asset classes,’ Hupalo said. ‘Students need to get a job that allows them to
pay off their debt. The delinquency rate will rise as long as students aren’t
graduating with degrees that pay back that cost.’
“As
young adults struggle to pay back loans, they’re forced to make financial
concessions that create a drag on the economy. Student debt has delayed
household formation and led to a decline in homeownership. Sixteen percent of
young workers ages 25 to 35 lived with their parents in 2017, up 4% from 10
years prior, says Bloomberg Intelligence.” Los Angeles Times, October 21st.
It’s
clear that the current system of paying for higher education simply does not
work. Bernie Sander’s socialist leanings, particularly as it relates to college
education, resonates with this student-loan-encumbered constituency. Sadly, I
know more than a few educated workers in their 40s and even their 50s still
paying off their student loans. Absurd.
Lifetime
job security is a thing of the past for most workers – changing jobs many times
is the new normal. The acceleration of technological change, artificial intelligence,
suggest that continuing education – plus the burden of paying for it – is
becoming a lifetime commitment for most workers. That only means such debt just
might rise over time, like filling bucket of water with a hole in it.
I’m Peter Dekom, and education and
retraining are so much a part of the fabric of modern employment that if we
cannot figure out how to afford this necessary process, the United States will
become very much the opposite of “Great Again.”
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