The parade of graduation commencement speakers starts soon, and hopefully Rick Rieder won’t be among them. Because the message from BlackRock’s chief investment officer of fundamental fixed income to all those fresh-scrubbed graduates would be a big downer: Your student debt could cripple the U.S. economy.
Rieder doesn’t actually blame college grads for student debt reaching almost $1.2 trillion last year, its highest level ever. It’s what they and their parents must borrow to pay for college—what he calls “this long-term unmitigated acceleration in the costâ€â€”that he targets. It’s something people should be concerned about even if no tuition or student loan looms in their future, he says. Rieder cites four interrelated reasons why college debt could hurt economic growth.
The debt burden has older workers working longer
Parents saddled with huge debt burdens from helping to pay for their kids’ college expect to have less in savings, and more in debt, when they reach retirement age. And so they work longer. Which is kind of a perverse dynamic that helps keep more recent graduates out of the labor market.
Student loans kill any prospect of saving
More than half of student loan borrowers carry heavy debt burdens into their 30s, says Rieder. “In spite of thinking of student loans as young persons’ debt, by 2014, two-thirds of all balances were owed by people over 30,†Andrew Haughwout, an economist and senior vice president at the Federal Reserve Bank of New York, said during an April presentation. And the average balance for each student loan borrower has risen 74 percent in the past decade, according to a recent report.
