Twenty-somethings owe a record amount of student loan debt and are stuck in a weak job market that does not give them a clear path toward paying that debt off.
Total student loan debt among borrowers under age 30 has more than doubled since the beginning of 2005 to $292 billion, as of the end of March, according to data released on Tuesday by the Federal Reserve Bank of New York. The average student loan debt burden for borrowers under age 30, as of the end of March, has risen 56 percent since the beginning of 2005 to a record $20,835.
The economic bust has coincided with a student loan boom. Overall student debt has skyrocketed 148 percent since the beginning of 2005 to $902 billion, as of the end of March, according to the New York Fed.
The rise in debt is in part due to colleges slashing scholarships. Just 35 percent of families paying for college received a scholarship in 2012, down from 45 percent in 2011, according to a study released on Monday by Sallie Mae. Meanwhile, 34 percent of all families paying for college took out federal student loans this year, up from 30 percent in 2011 and 25 percent in 2009.
Increasing debt has led to a conundrum for recent college graduates: In a dismal job market, they need their college degrees more than ever, but those college degrees still are not strong enough to compel employers to hire them. Instead, risk-averse employers have handed 58 percent of all new jobs over the past year to workers age 55 and older, according to Dean Baker, codirector of the Center for Economic and Policy Research, leaving many young people to languish without developing job skills that are critical for boosting their earnings later in life.
The average starting salary for recent college graduates has plunged 10 percent to $27,000 per year, according to a recent Rutgers University study. It would take 11 years for a borrower with that salary and the average student loan balance of $20,835 to pay off his or her student debt, according to the FinAid loan calculator.
Meanwhile, the unemployment rate among 20- to 24-year-olds was 13.7 percent in June, two-thirds higher than the general unemployment rate, according to the Labor Department. There were 2.1 million unemployed 20- to 24-year-olds and 2.7 million unemployed 25- to 34-year-olds in June.
A large share of recent college graduates are underemployed, often in dead-end jobs that do not use their skills. And some 27 percent of recent college graduates with a full-time job were working in such jobs in 2009, according to Drexel University. Their pay prospects are dismal; for example, the average annual pay for food service workers was $18,130 in 2010, according to the Labor Department. With that salary, it would take 23 years to pay off the average student loan burden.