University of Alabama
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Andrew Grzywacz has a university degree, a job that pays $8.50 an hour, a stack of résumés ready to be mailed – and more than $30,000 in student debt.

“I knew I wouldn’t land the dream job right out of college,” says the 23-year-old, who graduated from Boston’s Emerson College in December with a degree in film and television writing. “The [entertainment] industry is a tough nut to crack, more so than most fields.”

Even so, Mr Grzywacz is luckier than many his age. The share of American 18- to 24-year-olds who were employed fell to 54 per cent last year, the lowest since the labour department began tracking data in 1948, according to the Pew Research Center. The share who are in college has risen, but the researchers say this only partly explains the drop. The jobless rate for Americans age 16 to 24 is above 16 per cent, more than twice the national rate.

Youth unemployment has reached crisis levels around the world, with almost 13 per cent of the global youth labour force out of work this year, according to the International Labour Organisation.

But the problem has a unique flavour in the US, where the weak job market has collided with record levels of educational debt – about $25,000 for the average graduate. Together, they pose a threat to the future earning power of young Americans such as Mr Grzywacz – and could have long-lasting effects on US growth.

The US government has made some moves to ease the student debt burden, accelerating a programme that cuts federal loan payments for low-income borrowers and forgiving unpaid balances after 20 years instead of 25. It is also easier now for nearly 6m borrowers with more than one federal loan to consolidate their debt.

The White House has pushed other measures to make college more affordable – efforts that could appeal to young voters, who played a key role in Barack Obama’s 2008 election victory. Parts of the stimulus package passed in the wake of the financial crisis expanded tax credits for tuition, and last month Congress struck a deal to prevent interest rates on some new student loans from doubling.

But some advocates say such efforts are inadequate given the scale of the problem. A Michigan congressman this year proposed forgiving debt for some graduates – the bill is unlikely to pass – and others are urging the government to offer income-based repayment plans for private loans.

Proponents of such schemes say high student loan burdens are hindering the US recovery. Studies show that recent graduates from US universities are delaying purchases of cars and homes, inhibiting near-term economic growth.

Rohit Chopra, the official responsible for student loans at the Consumer Financial Protection Bureau, added his voice to the debate last week, telling the FT that the student debt problem was hurting the US economy. “Student debt may be more intertwined with the housing market than we realise,” he warned.

With more young people living at home, the rate of household formation – a leading driver of housing demand – is now on par with the 1940s, according to a Harvard study. Just 600,000 to 800,000 new households were formed each year from 2007-2011, compared with 1.2m to 1.3m a year in the previous four years.

Americans under 35 have lost more than a third of their net worth since 2001, compared with a 27 per cent decline for all ages, according to the Federal Reserve.

Making up that ground will be difficult for Mr Grzywacz and his peers, who are earning less in today’s depressed labour market. Median income for those under 35 dropped 10.5 per cent from 2007 to 2010 – more than any other age group – compared with a 7.7 per cent overall decline.

While a university degree still promises a higher income than a high school diploma, the median income of college graduates fell nearly 10 per cent from 2007 to 2010, according to the Fed, compared with a 5 per cent fall for high school graduates.

Young Americans are well aware of their precarious place in today’s economy, with only 16 per cent in a Rutgers University survey of recent university graduates believing their generation will have greater financial success than the one before. About half of the students surveyed had full-time jobs, and 40 per cent of the college graduates with loans reported putting off big purchases such as cars and homes.

This leaves a firmer economic recovery closely tied to the fortunes of a generation gripped by high levels of debt – and falling incomes from the jobs that require the education the debt buys.

Soon, the six-month grace period on Mr Grzywacz’s loan payments will expire, stretching his budget even further.

“Having student loan repayments thrown into that now is going to make things exceedingly more difficult,” he says. “I certainly knew that I would be in debt and that it would take years to pay it off. But it’s one thing to know that, and a completely different thing when, five years later, you’re actually looking at that debt square in the face.”

Additional reporting by Jason Abbruzzese

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