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Education Debt in the Ownership Society

Will the twin crises of housing and education debt freeze young people out of the American dream?

Photo Credit: Bizroug via


Education and housing are inextricably intertwined in both the American imagination and our economy -- yet there has been very little talk about how the student debt crisis and the housing crisis relate to each other in terms of both long-term economic cycles and our changing American identity. As evidenced by the overblown debate over interest rates taking place in Congress, we remain focused on minor details, and have yet to examine the big picture of what these twin crises portend.

With over $1 trillion amassed in student debt, and 41% of the class of 2005 delinquent or in default, our attention has remained stubbornly fixed on interest rate changes that would only amount to $9 a month in savings, for a handful of borrowers, while a crisis of inequality and poverty develops unchecked by public outrage and resistance. If we look at the cyclical and generational relationship between education debt and the housing market, however, we can see how the failure to treat the real crisis now will produce enormous inequality as millions of Americans continue to fall out of the middle class.  

Spiraling Downward Mobility

At least historically, college graduates have earned nearly $1 million more over their lifetime than high school graduates, and have suffered from significantly lower unemployment rates, as well. The idea of aspiring to a better life is deeply engrained in the American psyche, with education touted as the path to, among other things, better housing opportunities. By increasing our knowledge-base, and improving our value as workers and entrepreneurs, we have traditionally gained the economic means to live in middle-class communities that offer benefits like good schools and low crime.  

These middle-class communities – those we’ve come to think of as “America” -- were generated largely by government policies put into place during the Great Depression that made mortgages more accessible to certain segments of the (white) population as part of the New Deal. They were also communities with the property taxes to fund good public schools--which again opened a path to expanded educational opportunities. Access to education led to access to housing, which in turn led to access to improved education – in short, creating the spiral of upward mobility we associate with the American dream.

Although this dream has been an illusion for some time, until recently we hardly noticed that it disappeared. Why? Because we lived as if nothing had changed by going into debt. For the last 30 years we have seen wage stagnation for all but those at the very top of the income heap; thanks to that stagnation, the vast majority of Americans have only stayed afloat by taking on debt. Much of the debt that has been taken on has been educational debt, as aspirational American families have been unable to meet daily needs and save for their children’s college education at the same time.

Over the last 30 years, total college tuition rates have increased by around 500%; over the last 40 years, the estimated increase runs as high as a 900%. As a result, a full two-thirds of recent graduates carry an average of $27,000 dollars in student debt upon completion of college. And with 50% unemployment rates, new graduates often must choose between taking on predatory internships that rarely lead to employment, predatory student loans (as they attempt to sit out the recession in graduate school), and predatory low-wage employment that tends to lead to permanent underemployment.

We have also accumulated housing debt. The rule of thumb used to be that 25% of income should go to housing; today, 55% debt-to-income ratios are common. The majority of homes in the United States were purchased after 2000, which means that at present they have appreciated very little, if at all, given the housing meltdown of 2007. (In California, for example, 65% of homes were purchased after 2000, with 47% purchased after 2005.)