Youth Unemployment and Aggregate Student Debt

February 13, 2014

This week we take a look at the unemployment rates among young people and the rising levels of student debt. Following the crash in 2008, the aggregate student debt has more than doubled, rising from $500 billion to over $1 trillion. This is the result of not only traditional students struggling to afford tuition, but also due to many people returning to school in the hopes of improving their skill sets in a tough job market. The drastic increase is even more worrisome given the high levels of unemployment facing those who carry the majority of this debt. Workers between the ages of 15 and 24 are significantly more likely to be unemployed than their elders, with their current unemployment rate at 14.2% compared to 6.1% for those ages 25-54.

However, this is not necessarily as bad as it seems. As high as the present unemployment numbers are compared to the rest of the population, they are fairly consistent with historical averages. Additionally, the systematically high youth unemployment is not unique to the U.S. Most recently available data shows this figure in the European Union as 23.3% compared to 10.8% for the total population, and 16.0% and 7.8% respectively, among OECD countries.

Ultimately, there are two primary worries about the massive level of student debt. The first — and most obvious — is a widespread pattern of defaults on this outstanding debt, a potential disruption to the credit markets, and by extension, a headwind for growth. The second — while not as severe but still a threat to economic growth — is a reduction in consumption from students who are spending a larger percentage of their income on debt service, rather than consuming goods and services. Collectively, these two forces could emerge as a drag on economic growth at a time when the U.S. economy seems to need all the help it can get.