Maybe Student Loan Debt Isn’t Really an Issue?

Within the investment banking world, it’s quite common to presume that student loan debt is putting downward pressure on economic growth.

And the concern is not just for short-run economic conditions.  Rather, a graver concern is on the long-term effect student loan debt could have on the competitiveness of the American economy for generations to come.

These concerns, though, may just be another case of crisis-freude, rather than causing real economic problems.

The Student Loan Picture

Before looking at student loan per capita and employment growth figures, here’s a look at the universe of the student loans, based on data from the New York Federal Reserve.

Overall, since 2003, student loans debt is up about 381%, from $241 billion to about $1.157 trillion at the end of 2014.

Interestingly, the growth in student loan debt has consistently risen, without much of a business cycle.

Student Loans

Student Loan Picture on a Per Capita Basis by State

The broad picture provides an interesting view, although it leaves out some more detailed information. The following graphic inspects student loan debt per capita by state.

Interestingly, the political entity with the highest student loan debt per capita is Washington, D.C. at $11,260.

In 2014, the four other members of the top 5 highest indebted graduates (and non-graduates) include Georgia ($5,640), Minnesota ($5,550), Maryland ($5,480), and Ohio ($5,320).

The five states with the lowest student loan debt per capita include Hawaii ($3,010), Nevada ($3,180), Wyoming ($3,290), New Mexico ($3,550), and Utah ($3,620).

On the whole, the average student loan debt per capita was $4,335 in 2013 and $4,568 in 2014.

Student Loan Debt per Capita by State

Employment Growth Picture

Addressing next the employment picture, here’s a look at average year-over-year employment growth by state in 2013 and 2014.

The figure is sorted by average growth in 2014.

Interestingly, businesses in North Dakota grew the fastest at 3.9%, followed by Nevada (3.4%), Colorado (3.3%), Florida (3.2%), and Texas (3.1%).

The bottom end includes West Virginia (-0.4%), Virginia (0.5%), Maine (0.5%), Alaska (0.5%), and New Jersey (0.7%).

Average Employment Growth, 2013 and 2014

What’s the Relationship between Student Loan Debt and Employment Growth

Now with employment growth and student loan debt addressed, what’s the relationship between the two?

If the conventional wisdom is correct, then there should be a negative relationship, meaning that states with higher student loan debt per capita should have lower employment growth, and lower student loan debt per capita should have higher employment growth.

The first graphic shows the relationship in 2013. The second graphic shows the relationship in 2014.

Is there any connection? Interestingly, they are completely unrelated.

This implies, at least based on the correlations presented, that student loan debt per capita is not causing slower or higher employment growth.

Employment Growth and Student Loans per Capita, 2013

Employment Growth and Student Loans per Capita, 2014

Conclusion

Although many pundits and investment bankers presume that student loan debt is slowing economic growth, there doesn’t appear to be any relationship between the two.

In empirics, the correlation between student loan debt per capita and employment growth is virtually zero, suggesting that student loan debt probably isn’t having much impact on U.S. labor market.

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