By Bryce Covert, New Deal 2.0 | Alternet
This week’s credit check: Those ages 18-27 report a self-esteem boost from student loan and credit card debt. But about 9% of people ages 55-64 are still paying back student loans.
A new study recently came out that says young people get a self esteem boost from taking on debt. For those ages 18-27, its findings show, more credit card and student loan debt lead to higher self-esteem levels and a feeling of control over life. This lines up with some common sense: student debt is considered to be “good” debt, an investment in the future. And as Annie Lowrey reports, there is ample evidence that credit cards give us all the joys of consuming without the pain of spending actual money. She quotes George Lowenstein of Carnegie Mellon explaining, “Credit cards effectively anesthetize the pain of paying. You swipe the card and it doesn’t feel like you’re giving anything up to make the purchase, unlike paying cash where you have to hand over bills.”
But the other side of the coin, the study finds, is that the self-esteem high plummets later on when the students have to start paying that debt back — and realize how long and hard it will be to do so. For those over 28, having higher levels of debt reduced that sense of self-esteem and mastery. “By age 28, they may be realizing that they overestimated how much money they were going to earn in their jobs. When they took out the loans, they may have thought they would pay off their debts easily, and it is turning out that it is not as easy as they had hoped,” one of the study’s authors opined. This is unsurprising: While student loans help finance a college degree, and that does have an effect on eventual pay, the burden of paying them back often hangs around late into life. About 9% of people ages 55-64 still have student loan debt. Part of that is due to the fact that unlike most other forms of personal debt, student loans can’t be discharged in bankruptcy — there’s no way to get rid of them except payment.
And those loans will linger even longer without savings — even though young people think they are saving better than their parents. Almost half of respondents to a recent SavingsAccounts.com poll said they think as much. But as Jill Schlesinger points out, this isn’t really true. “The Bureau of Economic Analysis’ personal savings data indicates that the personal savings rate averaged only 3.48 percent of income over the previous 10 years, and doesn’t come close to matching the 10-year average personal savings rate of 9.63 percent seen from 1971-1981.” In fact, one in three adults under 33 have no savings at all. So on top of young grads being loaded to the hilt with debt burdens, they have very little stocked up to help pay it off.
They’ll be even more hindered, in fact, by another aspect: they can expect lower wages than their parents. Overall, middle class wages have almost completely stagnated over the past few decades. As CNNMoney reports, “In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.” On top of that trend, grads are entering an absolutely dismal job market, one that will likely have lasting effects on how much they’ll earn over their lifetimes. The NYTimes writes, “The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008… Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007.” And any reduction in pay now will have profound effects later. Charlie Eisenhood found that drops in initial wages due to high unemployment rates hang around: “even 15 years after college graduation, the wage loss is 2.5% and is still statistically significant,” according to one study.
All in all, the short-term ego boost of student and credit card debt pales in comparison to what young people are up against in the long run. A college degree can lead to good jobs, higher pay, and of course education, but the amount of debt students are asked to take on is getting out of control. They should probably sober up for a rocky road ahead.
Bryce Covert is Assistant Editor of New Deal 2.0.
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