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Monday, October 15, 2012

Student loans - a drag on the economy and housing?

I have seen some interesting charts of student loans lately.  Check this out.


This chart is absolutely parabolic since 2004.  That is more then $900 billion in loans.  I might be showing my age, but to me that is a lot of money.

Check out this article.

The Associated Press reports:

About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41 percent, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.
Broken down by occupation, young college graduates were heavily represented in jobs that require a high school diploma or less.
In the last year, they were more likely to be employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined (100,000 versus 90,000). There were more working in office-related jobs such as receptionist or payroll clerk than in all computer professional jobs (163,000 versus 100,000). More also were employed as cashiers, retail clerks and customer representatives than engineers (125,000 versus 80,000).
According to government projections released last month, only three of the 30 occupations with the largest projected number of job openings by 2020 will require a bachelor’s degree or higher to fill the position — teachers, college professors and accountants. Most job openings are in professions such as retail sales, fast food and truck driving, jobs which aren’t easily replaced by computers.

It looks like many college graduates today have a large amount of student loan debt hanging over them at the same time they are having trouble finding work in their profession.  Many are taking fairly low wage jobs just to have a job.  According to the government, things are not going to get much better as the last sentence in that article would seem to indicate.  It looks like new graduates today will have a lot less money to spend on things like getting married, buying a house, and starting a family.  Are there going to be as many first time home buyers around as there used to be?  Is there going to be much less economic activity created by new college graduates then before?

I guess there will be some economic benefits as the loans are repaid.  However, look at where that money is going.

Hmm, 88% of that money will be heading back to the good old Federal government.  If there ever was a black hole for money, that is it.  I am going to go out on a limb and say that the loan money paid back will not do a lot of good for the economy.

Here is a chart of the number of first time home buyers.


I have heard people say the much lower percentage of sales going to first time buyers is because they can't get loans.  Well duh.  Many prospective first time buyers already have a ton of debt and have low paying jobs.  What do you expect?

Investors have been rushing in to buy up houses in the last few years.


This chart shows investors home buying numbers are very similar if not higher then at the housing market top back in 2006.  We know how well that worked out.  They are likely driving up prices which will make it even harder for first time buyers.  Like any other market, investors will only drive prices up so far.  I don't know if there will be another crash or not.  It does seem likely there will be a plateau in prices at some point.

It looks like college graduates will likely not be providing as much economic value until the job situation gets much better.  The debt around their necks is already a drag on the economy and the total debt is growing exponentially.  Will that drag on the economy make it harder for the job market to pick up?  The sad part is that it does not look like this situation is set to improve anytime soon.


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