Are Student Loans Destroying the Economy?

Tuesday, April 23, 2013

Recoveries are powered by two things. Houses and cars. And young people aren't buying either.

That's the conclusion from a new study out of the New York Fed, via Brad Plumer, that can be easily read as blaming student debt for holding back the recovery by squashing home and auto sales.

The share of 30-year-olds with student debt who have taken out a mortgage has collapsed since the recession struck (ditto those without student debt).

And the share of 25-year-olds with student debt who also have an auto loan has fallen since the crash, as well (ditto again those without student debt).

This study seems to feed into a familiarly scary story about student debt as a dangerous bubble that is piling unprecedented levels of debt on young people, and is wrecking the economy by preventing them from starting their lives.

There's two problems with that story. First, as Jordan Weissmann and I wrote for The Atlantic, there are so many reasons that cars and houses are falling out of favor with young people beyond student loans (and even beyond the miserable economy) that it's impossible to pick a single culprit. For example, companies like Ford are vocally worried that smartphones are replacing cars as symbols of grown-up sociability, and young people are bunching in urban and urban-lite areas with many apartments and good public transit.

Second, it's a myth that college graduates have more debt than they used to. In fact, they have less. Total debt for 20-somethings has fallen since its peak in 2008, as it has for every age group in this period of deleveraging. Families that feasted on credit in the last decade have spent the last few years paying back what they owe and cutting back their excessive spending. Young people, with and without student loans, have done the very same.

Read more »