We have recently discussed how debt and credit play an important role in economic growth. When debt and credit decline, it is often due to a slowdown in economic activity. More recently a rapid increase in debt might also represent a dangerous indicator that growth is faltering.
According to recently released Census information, the number of young adults cohabitating with their parents is now at the highest recorded rate (30.3% nationwide and 27.7% in Virginia) since the early 1980s. One of the implications of the slowdown in household formation is that young men and women who graduate from high school or college are not leaving home as rapidly as they once were. These men and women may be more likely to do this if they have excessive debt from school or are unable to access credit markets to purchase homes, cars, or other things that would be associated with “starting one’s life on their own.” Currently, “the average Class of 2014 graduate with student-loan debt has around $33,000 to pay back” which coincides with rising tuitions at both public and private universities, and reduced funding from states who are facing their own budget deficits (JMU). Not only is the inflation-adjusted debt load per student rising, the number of students leaving college with debt is rising as well. This rising aggregate student debt helps explain some of the rise in parental cohabitation, but much of the reason lies elsewhere.
While aggregate debt is rising rapidly to 11.8 trillion, it is still below the levels that it hit at the previous peak of $12.7 in 2008. Thus, debt has a cyclical feature, as rising debt is usually associated with rising delinquencies, as increased debt burdens lead to more people being unable to pay their bills on time. It is notable that we are seeing rising delinquencies in various types of debt including student and car loan related data.
Questions you might consider:
- The main question you should be thinking about here relates to how this rising debt load might impact the economy’s ability to weather future recessions or what impact it might have on growth if the majority of college students not only have debt, but face increasing amounts even after adjusting for inflation. Does this debt limit government career potential or finance and law?
- Do rising debt levels force people to put off starting their own families? How might this affect the future population if college educated adults cannot afford to have children.
- Also note, that recessions happen to coincide with times when people lose their jobs and might need to rely on credit to get by. However, this is also a time when people lose their access to credit.
Think about how to weave your thoughts here around factual data or academic research. Do not simply recite the numbers posted here, but dig into these stories a bit more.