College Debt and the Recession

So the economy is doing better now. Certainly dramatically better than it was when Barack Obama took office in 2009. But economic boom years are not coming back. That might have something to do with college debt.

According to an article by Isaac Bowers at U.S. News & World Report:

Consumer spending is 70 percent of the U.S. economy… houses have traditionally been the major assets of America’s middle class. Those assets are in freefall.

Purchases of new homes are down 77 percent from their 2005 peak, overall home sales are still dropping, and prices are still falling.

Only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011. Some 17 percent of – to 34-year-olds got a first-time mortgage a decade ago.

According to the article it’s those first-time buyers who can revive the housing market. And the housing market impacts everything else.

Of course, the solution here is hard to figure out. People under 35 aren’t buying houses because of college debt, but also because banks aren’t loaning money to people in precarious financial situations. It’s not that student loans were dramatically less burdensome a decade ago; it’s just that banks were willing, indeed eager, to offer mortgages to people who couldn’t really afford them.

Still, with student debt now in the low trillions, it looks like the economy is just going to keep limping along until we can do something about housing policy. But then, maybe housing policy is really education financing policy. Let’s keep this in mind.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer