Student loan debt has more than doubled over the past decade and now exceeds $1.5 trillion. If there is one bit of good news, it's that new data from the Federal Reserve Bank of New York shows that student loan debt has just about stopped growing, likely in part to a tighter labor market. So as long as the labor market continues to stay strong, student loan debt shouldn't be as much of a burden to the next generation of workers as it has to the last one.
The rise in student loan debt can be attributed to many factors, and not just the rising cost of higher education. Demographic forces played a role as the large Millennial generation passed through its peak higher education years in the 2000's and 2010's. Another has been the impact of the Great Recession, both by cutting state funding for public universities, which led to higher tuition, and for pushing some young people from the labor market and into higher education as a way of making themselves more employable. Ernie Tedeschi, a researcher at Evercore ISI, has shown that a 0.5% decline in the prime-age labor force participation rate between 2010 and 2012 was due to an increase in school enrollment.
The impact may have been even more dramatic for Americans in their prime higher education years. For people between the ages of 20 to 24, the labor force participation rate fell from 75.6% in December 2006 to 69.9% in August 2012. Only within the past couple of years has it begun to recover, but it's still 2.7 percentage points below what it was in late 2006, and 5 percentage points lower than in 2000. Getting back to 2000 levels would mean an additional one million young workers in the labor force relative to what we have now rather than in school paying tuition and taking out student loans.
At the same time that labor force participation rates for young people are picking up, higher education enrollment is falling, dropping to a 10-year low in 2019. Enrollment has fallen by 3% the past two years, or by 570,000 students. Some of that is due to a shrinking population of 20- to 24-year olds, with that part of the population declining by about 400,000 people in the same period. What's also encouraging is that the biggest enrollment declines occurred in for-profit institutions, which are of dubious value for students. And even with falling population numbers the size of the labor force of people in that age group is unchanged, reflecting the increase in labor force participation rates.
What we may be seeing — thanks to the strengthening labor market — is a virtuous cycle for young people weighing the choice of seeking employment or enrolling in higher education. For people on the fence, the job market is strong enough that they're increasingly choosing to work. This is showing up in higher labor force participation rates, lower education enrollment rates and a flattening out in the level of student loan debt owed. Down the road, these young people who chose to work will be in a better position to start families and buy homes, rather than saddled by student loan debt like we've seen over the past number of years.
This trend could have a long way to go. New research shows that there's essentially no wage premium for the lower-earning half of college graduates. There are a couple of ways to think about this. The first is that the labor market still needs to be stronger to allow that group of Americans to thrive. And another is that labor market dynamics have changed to the point where those without degrees can now earn wages on par with many college graduates, and that many people with degrees could earn the same wage they are now without having paid for their degree, perhaps with a little training from employers.
The high level of existing student loan debt is in many respects a labor market policy failure over the last decade, and progressives and labor activists have a case in arguing that something should be done to lighten that load. But going forward, there's reason to believe that growing numbers of Americans will be able to launch their careers without feeling like that debt is a necessity. Addressing student loan debt starts with full employment labor market policies, and it's encouraging that policymakers are taking that more seriously.
Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.