There is an undeniable Catch-22 phenomenon encompassing student debt. In order to get a job, you need a college degree, but in pursuit of a degree, millions of Americans have been pushed into seemingly endless debt.
According to a report from the Project on Student Debt at the Institute for College Access and Success (TICAS), 71 percent of college seniors graduated with student debt in 2012, on average borrowing $29,400.
Moreover, two years after leaving school, students default on their federal loans at a rate of 9.1 percent, according to a recent report by the New York Federal Reserve Bank. That figure jumps to 13.4 percent at the three-year mark.
Holistically, 17.5 percent of the 38.8 million Americans with student loans are seriously delinquent on their payments, and of the 20 million borrowers who have actually started repayment on their loans, 31 percent are seriously delinquent.
Adding to the struggles of making payments each month, many students are unable to find a stable job upon graduation. Of those who graduated college since 2006, only 51 percent have full-time jobs and 11 percent are unemployed, according to a Rutgers University Study.
For the more recent graduates, the statistics are even bleaker. Graduates since 2009 are three times more likely to not have found a full-time job than classes of 2006 to 2008. As of December 2013, the official unemployment rate for 16 to 24 year olds was 13.5 percent.
For those who do manage to find a job, their student debt often plays an essential factor in what type of job they choose, how they perform at that job, and their overall career path.
Barriers To Finding A Job
Student debt has rendered many students unemployable.
For instance, the Department of Education has encouraged schools to withhold transcripts from students who have fallen behind on payments, which hinders the application process.
If one already has a job but defaults on his or her student loans, the individual could also have his or her professional license revoked and subsequently lose his or her job. Take 42 nurses in Tennessee for instance who were suspended for failing to repay their federal student loans.
Furthermore, in Montana you can even have your driver’s license suspended by the Montana Department of Justice for defaulting on your student loans. Having reliable transportation is often a necessity to acquiring and retaining a job.
For some recent graduates who face grim job opportunities, they give up on the job search and enroll in graduate school in part to defer the loans, and also in hope to eventually improve their salary prospects. In retrospect, this only adds to their student loans, but it temporarily delays when they have to actually face the problem.
There are certain jobs that graduates with student debt are explicitly restricted from pursuing, such as jobs that require security clearance. Federal Government and Contractor employment is growing, but opportunities with the Department of Defense, CIA, National Security Agency, and airport security jobs all require security clearance.
Additionally, advancement in certain careers may require security clearance and many military jobs require security clearance because of their access to confidential information.
Although simply having student debt or defaulting on loans will not automatically prohibit one from obtaining a security clearance, appearing “financially irresponsible” can jeopardize the applicant’s security clearance.
Service members are also suffering from the effects of student debt. In a speech at the Pentagon in October 2012, Defense Secretary Leon E. Panetta stated “The number one reason people in the service lose their security clearance is because of financial problems.”
His concern is heightened by the fact that around 41 percent of service members are paying off an education-related loan.
According to a report published by the Consumer Financial Protection Bureau (CFPB), the average amount of student loan debt for active-duty service members graduating from college in 2008 was $25,566.
Many graduates enter the military because they are unable to pay their student loans and are unable to find a job. Yet, most of their paycheck ends up going to pay off the loans.
Furthermore, student loan servicers fail to provide sufficient information for military borrowers to make the best decisions regarding available options, so many end up exacerbating their student debt problems rather than alleviating them.
Student debt also affects one’s credit socre, which is often checked in the job application process. Even though it is not supposed to be considered as hiring criteria, among job applicants with blemished credit histories, one in seven have been advised that they were not being hired because of their credit.
Having poor credit can exclude you from jobs at banks, such as tellers and investment bankers. Ironically, many banks distribute some of the private student loans that cause students to go into debt in the first place.
Implicitly, student debt also has an affect on the types of jobs students pursue. For example, many graduates tend to choose private sector over public sector jobs because they offer higher pay.
In a survey done by American Student Assistance (ASA), 25 percent of respondents stated that their student loan debt affected their choice to take a job in the private sector rather than the public sector. This has pushed many students out of public interest fields like education, public service, and non-profits.
The struggle to pay back student loans has been a huge challenge for students who chose to stick with a career in the public sector.
Woodrow Price, a fifth-grade teacher in Port Gibson, MS, owes $28,000 in student debt. He enrolled in graduate school to defer his loans, and now he’s dealing with the ramifications. Price has been left with no choice to borrow his mother’s car and miss out on activities like traveling.
Social workers are also struggling with student loan payments exceeding their salaries.
In 2008, the National Association of Social Workers conducted a study on the effects student debt had on its members. The study found that 69 percent of respondents incurred student debt for their social work education. Additionally, 48 percent of those in debt described their debt load as unreasonable and 21 percent described it as unmanageable.
Government employees also have unmatched debt-to-income ratios.
Sonya Atamanchuk, 35, graduated from ECPI University, a for-profit college, with $38,000 in student loans. She has paid off $2,000 but as a program analyst with the U.S. Army Corps of Engineers, she is only making $30,000 a year. She’s been making car payments, trying to save for a house, and living without cable as she continues to pay off her loans.
Student debt has caused many graduates to shy away from jobs in rural communities because they also tend to have lower salaries. Specifically, small towns in rural America are having a hard time attracting doctors and lawyers, who routinely graduate with $100,000 of debt. According to the Annals of Family Medicine, by 2025 we will need an additional 52,000 primary care physicians. Yet, of the students who are not deterred by the high costs of medical school, many end up going into medical specialties where there is opportunity for higher salaries.
Students seeking to pursue a religious career have also been deterred and the reason is multi-faceted. First, many students cannot afford to go into religious vocations because they are low-paying. Additionally, most religious orders mandate that applicants be debt free before joining.
According to a 2012 study by the Center for Applied Research in the Apostolate at Georgetown University, 69 percent of religious orders turned away at least one applicant due to student loans. Finally, seminary graduates who wish to pursue religious careers are often crippled by seminary debt on top of their existing undergraduate debt.
In ASA’s study, 20 percent of respondents said that their student loan debt was the deciding factor, or had considerable impact, on their choice of career field. Additionally, debt impedes the ability of students to take out small-business loans, which may lead to stifled entrepreneurship and innovation.
Many college graduates are not only unable to pursue their desired occupations, but they’re also forced to accept part-time work or less desirable, low-paying jobs to assist in paying back their loans.
Some of these “in-between” occupations include food preparation and serving workers, cashiers, and waiters. According to the Labor Department, nearly 300,000 college graduates were working a minimum-wage job in 2012, which is 70 percent higher than a decade earlier.
Because so many students are forced into jobs they don’t want, they often end up with a high level of job regret. In ASA’s study, about 40 percent of recent graduates took a job that provided higher pay, but less satisfaction, in order to pay off their student debt loans.
This in turn affects graduates’ performance in their jobs; they often spend a lot of time at work looking for another job, which decreases productivity. It also impacts the employer, as job regret leads to apathy, low motivation, and overall poor employee performance.
Young Americans are not the only ones who have been impacted by student debt. Research from the Federal Reserve Bank of New York shows more than six million Americans over the age of 50 are still paying off student loans. Some have debt because they went to school at a later age, while others co-signed a loan for a child or grandchild and ended up with the debt. These older Americans collectively owe $133 billion in debt.
As student debt continues to affect milestone decisions such as buying a house, starting a family, finding a job, and saving for retirement, the effects will reverberate through society.
With over 86 million Millennials in the United States, the success of the nation’s economy will be dependent on the success of these Americans. The escalating problem of student loan debt is not only about the dollar figure of individual loans, but what the student loan burden means for the Millennials who will soon be the leaders of our country.