Members of the millennial generation – born between 1982 and 2003 – carry a student debt burden of close to one trillion dollars. This is the group that includes many just entering the stage in life when people tend to settle down and start families. Even though Millennials are marrying later than previous generations, they would still be the prime market for sales of single family starter homes, if only they could afford them. As interest rates rise along with home prices, the only way this key consumer segment will be able to afford to buy a house is if the nation, out of its own self-interest, finds a way to relieve Millennials of their crushing student loan obligations.
Millennials are the first generation in American history that has been asked to self-finance the cost of the education needed for America to be economically successful. Shortly after the ratification of the Constitution, Congress passed legislation setting aside land in the new territories for the establishment of the iconic one room school houses to assure its newest citizens had the skills required to be good farmers and domestic servants. Even as the country was engaged in a devastating Civil War, a state-by-state movement to mandate universal and free primary education for every child swept the nation and became a permanent part of American society. Then, when the Industrial Revolution generated a demand for factory and office workers with a high school education, the nation expanded the concept to make such an education available equally to young men and women without any requirement to pay tuition.
The situation has changed, but the need for an educated young generation has not. The difference is that at least two years of post-secondary education has become a must-have ticket for a young generation seeking to make its way in the world. Yet we have suddenly yanked the universal, free education rug out from under them and asked them to pay for it by not only going into debt, but assuming a debt that is not even dischargeable in bankruptcy court.
The result is a rising tide of student debt that threatens to undermine the economic vitality of the nation. According to the Federal Reserve, student debt rose by a factor of more than eight between 2001 and 2012, twice as fast as home loans and far in excess of the modest increases in other forms of indebtedness during the same time period. A recently released report by the Consumer Financial Protection Bureau indicates that about one in four student loans is now either in default or in programs designed to help borrowers in distress. This analysis looked only at loans made through the direct student loan program totaling about $570 million, not older ones that may have been offered by banks and other private sector lenders. If borrowers are unable to repay their loans in the long run, the federal government and taxpayers will have to absorb the losses. Why, then, not recognize the problem now and bail out the borrowers so that they can put the windfall to good use in an economy desperately needing a new boost in consumer spending?
The Great Recession seriously disrupted household formation and consumer spending. According to an analysis by Merrill Lynch, in the decade before the financial markets’ collapse in 2008, one-third of all housing turnovers came from homeowners older than 55, and about one-third of those sales were to buyers under 34. Since then sales of homes have fallen by about two million units, leaving the economy 2.5 million households below normal levels. Millennials represent about 22% of the US population and control $200 billion of direct purchasing power, not counting their influence on their parent’s spending decisions. Over the next five years, a quarter of Millennials will enter their peak spending years, making them the best hope for reviving the housing market.
Millennials have expressed a strong preference for living in the type of suburban communities in which they grew up, especially when it’s time, as it is for many of them now, to raise a family. Their first home needn’t be “move in ready;” about a third of them say they would prefer a “fixer upper.” And more than 80% of the generation believe they would find a way to pay for the cost of any repairs themselves rather than borrow the money from their parents. A wave of new home buying would not only give a sharp boost to the durable goods industry that depends on new household formation for its growth, but would also provide a ready-made army to fix up some of the country’s declining, inner ring suburban housing stock.
There are legitimate public policy issues about how to fix the problem of financing American higher education. Some might argue that we should tackle that problem before dealing with student loan debtors. But with the economic recovery still proceeding at too slow a pace for most middle class Americans, an equally good case can be made that the country should deal with student loan debt either first or as part of a comprehensive reform of financing higher education. The economy could use the boost, as could the morale of America’s largest and most diverse generation.
Morley Winograd and Michael D. Hais are co-authors of the newly published Millennial Momentum: How a New Generation is Remaking America and Millennial Makeover: MySpace, YouTube, and the Future of American Politics and fellows of NDN and the New Policy Institute.
New home photo by BigStockPhoto.com.
Comments
69 responses to “Here’s a Way to Flood the US Housing Market with One Trillion Dollars”
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Amen. This is just one way, but perhaps the most important, in which this country has for the first time in our history turned its back on the future! I no longer recognize the country I grew up in many decades ago. Not only would we strengthen the long-term future of America, we would also give the same kind of boost for lifting us out of this Depression than World War II did for the 30s generation (and in much more productive ways).
Maybe you are right bro.
In any area with inelastic supply of land for urban growth, mostly due to regulations and central planning, anything that increases the ability of buyers to pay for housing, feeds straight into price increases, leaving no-one any better off except the vendors of land.
However, measures that increase the ability of buyers to pay for housing, does feed straight into increased home ownership and house construction and economic stimulus – IN REGIONS WITH ELASTIC SUPPLY of land for urban growth, usually due to an absence of growth-containment central planning.
For example, mortgage interest tax deductibility will be one of many things forcing house prices up in California, but one of many things boosting house construction and home ownership in Texas.
“Yet we have suddenly yanked the universal, free education rug out from under them and asked them to pay for it by not only going into debt, but assuming a debt that is not even dischargeable in bankruptcy court.”
Since when was college free? Student loans were meant as a way to allow more people to attend college. And at this they have succeded. However, this has increased demand which has driven up tuition which leads to more student debt.
This article is built upon many tenuous assumptions such as college being mandatory for a successful career, that education should be free and most of all that wiping out student debt will be costless. I doubt that would be the case. Someone, somewhwere will ultimately have to pay. Why shouldn’t it be the people who took on the debt willingly and benefitted the most directly from it?
Googling “Higher Education Bubble” gets lots of hits. An oversupply of graduates for many disciplines is putting downwards pressure on incomes after graduation.
Many degrees are next to useless in the market place and depend on employment being available in parasitic government and NGO jobs.
And the USA’s number of lawyers is just insane.
Charles Murray has been writing for years about how many blue collar trades are now a better bet for more people than ever.
I agree, “Since when was college free?”.
I also agree that the level of student loan debt has become an ever growing drag on the younger generations and that more and more people believe that a 4 year college education is necessary to succeed. Why is this?
1) Unskilled manual labor isn’t worth what it used to be worth and technology/automation has replaced many semi-skilled jobs.
2) The failure of K-12 education. Too many graduate functionally illiterate and unable to calculate the final bill on a $5 sandwich +5% tax. The high school graduate is no longer viewed as being qualified to do many of the jobs that historically did not require a college education. Many employers now use the piece of paper gained from 4 yrs of college as a means of sorting through prospective employes.
3) Too many people majoring in fields for which there are few job prospects or for which the compensation is insufficient to justify the cost.
Some possible solutions:
1) Allow “new” student debt to be dischargeable by bankruptcy. Unsecured loans will not be given to people who chose majors that are not in demand and will not provide an income sufficient to allow them to repay the loans. This will discourage the enabling of bad choices.
2) Encourage more people to go to trade schools and get 2 year associates degrees. If a proper field is chosen, these degrees can provide the skills to earn a good income for a much more reasonable price.
3) Support policies and elect politicians that would promote a true recovery and not this faux recovery for which job growth is not keeping up with population growth.
But of course this all is easier said than done.
“Every generation laughs at the old fashions but follows religiously the new” Henry David Thoreau
So this millennial generation and it’s poor decisions are “too big to fail”? Wrong, wrong, wrong! We all must lie in the beds we’ve made without asking Uncle Sam to bail us out…suck it up, bust your butts to get and keep good jobs, pay off your loans and THEN buy a house when you can better afford it – period.
There’s no way education can be free of cost but government is providing loan system which is more than enough. The best option is to home school or join any online tutoring services which follow standard school curriculum.
Thanks Fiona – good point. For most of us, orienting our lives towards love is a huge change. However, once it takes hold, the economic problems usually fade into the background. I’ll reflect on that for the next book
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