College Graduates Start with Negative Worth, and That Screws up the Economy

May 29, 2013
By Seth Maloney | 4 comments

From: CitihealthTill debt do us part

Getting people to take risks and spend money is a powerful, fundamental way to spur economic growth, but what if college graduates simply cannot take those risks? There's $1.1 trillion in college debt in the US, and that's leaving millions of new graduates every year with a negative worth that makes access to credit even more difficult. 

Huge decisions are often left up in the air, like abstractions that have no place in reality. Decisions like buying a car or owning a home are often put aside by young people, but marriage?

As a society we are encouraged to get married. The tax-code is rigged in favor of married couples, the "nuclear family" of parents with children is supposed to be as important as apple pie, and the entire debate around marriage equality has shown that we, as a society, really care about marriage. 

Add in the complications of college debt, and you might as well make marriage as abstract and unlikely as owning a home or a car. 


No house, no car, no happy marriage with kids. It's just too expensive, and Nobel Prize winning economist Joseph Stiglitz has pointed out that student loan debt has effectively crushed the American dream. 

Curbing student debt is tantamount to curbing social and economic opportunity. College graduates earn $12,000 more per year than those without college degrees; the gap has almost tripled just since 1980. Our economy is increasingly reliant on knowledge-related industries. No matter what happens with currency wars and trade balances, the United States is not going to return to making textiles. Unemployment rates among college graduates are much lower than among those with only a high school diploma. -Stiglitz

From: Thinkers50The case for a college education is made very clear: in order to stay competitive in an increasingly complex world, we must be educated. We cannot go back to the old means of production and can't rely on cheap manufacturing to stay caught up. Developing human capital is absolutely necessary. 

But if we spend so much on college, how can this developed human capital move forward? Marriage, despite being raised to such a high standard and being a valued tradition for everyone to fight for, is representative of what young graduates saddled with debt are incapable of attaining. 

Two educated people wanting to get married could share $53,200 in debt before they cut the cake

Assuming they get married after college, and they each share the average student debt, AND they have an average wedding. That's the shared debt before even considering a home, a car, or anything else. 

Educated couples have to keep delaying important moments of their life, or take the risk of sharing the debts of a spouse, which can run much, much higher than the average. A med school student can run over $100,000 in debt

Curtailing the day-to-day repercussions of loan debt is necessary to allow graduates to pursue their lives and enter the economy. Stiglitz again :

"Student debt also is a drag on the slow recovery that began in 2009. By dampening consumption, it hinders economic growth. It is also holding back recovery in real estate, the sector where the Great Recession started."

Stiglitz credits Elizabeth Warren for thinking outside the box on how to tackle the overall problem of student loans, too. 

"If the Federal Reserve is willing to lend to the banks that caused the crisis at just 0.75 percent, shouldn’t it be willing to lend to students, who will be crucial to our long-term recovery, at an appropriately low rate? The government shouldn’t be profiting from our poorest while subsidizing our richest."

A Nobel Prize winning economist knows that college students need a fair shake with student loans. Doubling the interest rates on Stafford Loans are only going to add more total debt to students and drag them further into debt, forcing them to put off important economic and life decisions even longer. 

Elizabeth Warren's bill to lower interest rates to 0.75% has over a million signatures supporting it. Take action to stop loan rates from doubling.

Share your experiences with student loan debt by adding a comment below.

Categories: Economy and Jobs Education


Commenting on this post has been closed.

I think Joseph Stiglitz is right. Many developing countries provide free or affordable university education, as well as health care. The USA can't be bothered to consider forgiving student loan debt or even creating jobs that pay proportionally to what someone will owe and allow them to live a decent living. But hey, if you're a bank or rich corporation, you can do whatever you want and not have to pay taxes or any of your debt.

Ingrid Cruz

I understand that student loan debt is a huge and crushing issue but mentioning that the average wedding costs 28k is not a good way to convince anyone that we need to lower student loan debt. All I hear when someone says that is "Oh I'm sorry that the costs of your education are making it so you can't spend the down payment for a house on a fancy party"

Nancy Decker

My husband and I utilized subsidized student loans over 40 years ago to get our degrees. We were very grateful! Not only did we pay the loans back and the interest, the incremental taxes we paid over a lifetime of work ( because of our increased earning power) was more than 1,000 times the original loans we took out. Investing in students and education is the best investment our government ever has or ever will make. I don't understand why this is so hard for Congress to understand!

Bette Long

Nice of Liz to throw the students a bone by allowing them to modify the loan contracts they signed. The real problem is the skyrocketing tuitions, which are used to pay hypocrites like Liz 400k for a part-time job. Liz won't tackle that problem, or the fact that Harvard has a $70 billion tax free endowment but they jack their tuition rates 10% every year. Get the banks to loan money to the students. Have the students give the money to Big Academia, then strong arm the banks into forgiving the loans so you look like a hero. This is called the Academic Ponzi Scheme. Liz Warren is a PIG she doesn't care about your education, just the money.

Devil Patrick
Stay informed -- like DFA on Facebook. ×