[Senate Hearing 113-472]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-472


DREAMS DEFERRED: YOUNG WORKERS AND RECENT GRADUATES IN THE U.S. ECONOMY

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

   EXAMINING THE CURRENT ECONOMIC CONDITIONS FACING YOUNG AMERICANS, 
FOCUSING ON KEY AREAS OF CONCERN SUCH AS UNEMPLOYMENT, UNDEREMPLOYMENT, 
                           AND STUDENT DEBT.

                               __________

                             JUNE 25, 2014

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                       Taylor Reed, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     JEFF MERKLEY, Oregon, Chairman

             DEAN HELLER, Nevada, Ranking Republican Member

JOHN TESTER, Montana                 TOM COBURN, Oklahoma
MARK R. WARNER, Virginia             DAVID VITTER, Louisiana
KAY HAGAN, North Carolina            MIKE JOHANNS, Nebraska
JOE MANCHIN III, West Virginia       MIKE CRAPO, Idaho
HEIDI HEITKAMP, North Dakota

               Andrew Green, Subcommittee Staff Director

        Scott Riplinger, Republican Subcommittee Staff Director

                                  (ii)
























                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, JUNE 25, 2014

                                                                   Page

Opening statement of Chairman Merkley............................     1

Opening statements, comments, or prepared statements of:
    Senator Warren...............................................     2
    Senator Heller
        Prepared statement.......................................    19

                               WITNESSES

Emma Kallaway, Executive Director, Oregon Student Association....     3
    Prepared statement...........................................    19
Rory O'Sullivan, Deputy Director, Young Invincibles..............     5
    Prepared statement...........................................    22
Heidi Shierholz, Economist, Economic Policy Institute............     7
    Prepared statement...........................................    27
Keith Hall, Senior Research Fellow, Mercatus Center at George 
  Mason
  University.....................................................     9
    Prepared statement...........................................    40

              Additional Material Supplied for the Record

Letter submitted by Steve Brown, President, National Association 
  of Realtors....................................................    44

                                 (iii)

 
DREAMS DEFERRED: YOUNG WORKERS AND RECENT GRADUATES IN THE U.S. ECONOMY

                              ----------                              


                        WEDNESDAY, JUNE 25, 2014

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                           Subcommittee on Economic Policy,
                                                    Washington, DC.
    The Subcommittee met at 3:15 p.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Jeff Merkley, Chairman of the 
Subcommittee, presiding.

           OPENING STATEMENT OF CHAIRMAN JEFF MERKLEY

    Chairman Merkley. I call this hearing of the Economic 
Policy Subcommittee of the Committee on Banking, Housing, and 
Urban Affairs to order. Growing up, I know my parents shared 
the same hopes of most American parents, that in America, their 
children have a chance to go farther than they had. That vision 
of each generation doing better than the last was and is a 
fundamental part of the American dream.
    It is what led my father, a millwright and a mechanic, to 
believe that his son could do just about anything if, as he 
said, you go through the doors of the schoolhouse and you work 
hard.
    Today, however, young Americans and their families worry 
about whether, in this postrecession economy, there will be the 
same kinds of opportunities for this generation. And their 
concerns are not unfounded. Graduating in a bad economy can 
negatively impact graduates' income for many years to come, a 
statistic that is all the more alarming in an era of exploding 
student loan debt.
    A recent failure to pass relief for those striving to pay 
off student debt has left young people continuing to struggle 
under high interest rates without necessarily being able to 
find the good, middle-class jobs they were counting on. Workers 
under the age of 25 have unemployment rates slightly over twice 
as high as the national average. By some estimates, including 
those who have given up looking for work, the rate may be over 
18 percent.
    The picture is not all doom and gloom. The generation that 
is now graduating and entering the workforce is creative and 
resourceful. The key is for us to create the strong economy and 
good jobs that will allow them to fulfill their potential. As 
policy makers, we owe it to young Americans to hear their 
concerns and seek to develop policies that will better empower 
them to succeed, and when they succeed, our whole economy does 
better.
    We have with us today a panel of experts who will discuss 
the economic challenges facing young Americans and their impact 
on the economy as a whole. So I am delighted to have all of you 
with us today. Would you like to make any opening statement, 
Senator Warren?

             STATEMENT OF SENATOR ELIZABETH WARREN

    Senator Warren. Thank you very much, Mr. Chairman. The only 
thing I would add to what you say is that young people do 
everything they are supposed to do. They go out, they get an 
education, they try to hold their expenses down and their loan 
debts down, but at the end of the day when they graduate, they 
have to count on a robust economy and an opportunity to earn a 
living and pay back their debt.
    The policies we make here in Washington really can be the 
difference between success and just getting crushed. We will 
make decisions here in Washington that will determine how much 
college costs in terms of the student loans, what happens to 
the rising cost of college, but also the kind of economy that 
young people enter and what kind of opportunities they will 
have.
    So I am particularly pleased that you called this hearing, 
Mr. Chairman, and it will give us an opportunity to think about 
these issues in a systematic way what it means for each wave of 
young people who graduate from college, what kind of 
opportunities they face, what kind of difficulties they face, 
and how it is here in Washington. We should be shaping policy 
to create a fighting chance for everyone. Thank you.
    Chairman Merkley. Our hearing today is titled ``Dreams 
Deferred: Young Workers and Recent Graduates in the U.S. 
Economy''. And to help address these questions, we have four 
terrific experts. I will go ahead and introduce all of you and 
then ask each of you to give your testimony.
    Emma Kallaway is Executive Director of the Oregon Student 
Association, a statewide student-led advocacy nonprofit which 
was established in 1975 to represent, serve, and protect the 
interests of students in postsecondary education in Oregon. Ms. 
Kallaway holds a B.A. in business administration from the 
University of Oregon where she served as President of the 
Associated Students of the University and OSA Board of 
Directors Chair.
    Rory O'Sullivan is Deputy Director at Young Invincibles, an 
organization dedicated to giving young adults a stronger voice 
and expanding economic opportunity, focusing on employment, 
higher education, and health care. He holds a Bachelor's degree 
in philosophy, politics, and economics from Pomona College and 
a joint J.D./Master's in public policy from Georgetown.
    Dr. Heidi Shierholz is an economist at the Economic Policy 
Institute. She holds a B.A. in mathematics from Grinnell 
College, an M.S. in statistics from Iowa State University, and 
a Ph.D. in economics from the University of Michigan. She has 
researched and spoken widely on the economy and economic policy 
as it affects middle- and low-income families.
    Dr. Keith Hall is a Senior Research Fellow at the Mercatus 
Center at George Mason University. He received his B.A. from 
the University of Virginia and his Ph.D. in economics from 
Purdue. Dr. Hall has a distinguished career in public service 
and academia, including service as the 13th Commissioner of the 
Bureau of Labor Statistics and as Chief Economist for the White 
House Council of Economic Advisors.
    I would like each of you to try to hold your testimony to 
about 5 minutes and then we will turn to questions and dialogs. 
Ms. Kallaway.

STATEMENT OF EMMA KALLAWAY, EXECUTIVE DIRECTOR, OREGON STUDENT 
                          ASSOCIATION

    Ms. Kallaway. Good afternoon, Members of the Committee. My 
name is Emma Kallaway. I graduated from the University of 
Oregon in 2010. I am the Executive Director of the Oregon 
Student Association. Our nonprofit represents about 120,000 
students across the State of Oregon. Our organization fights 
for a more affordable and accessible postsecondary education. 
And we also engage students in one of the largest voter 
registration drives in the country.
    Today I would like to share with you the financial impacts 
that student loan debt has had on my life and students across 
Oregon. During my time at the University of Oregon, tuition 
went up 50 percent. Even with academic scholarships, working 
two jobs, taking classes full-time, I still left school with 
$25,000 in student loan debt. I pay $200 a month. I bring in 
about $2,000 a month in income after taxes. I have very little 
discretionary income and it is nearly impossible for me to save 
for my future.
    My story is the story of thousands of young people across 
the United States. My degree is in business administration, I 
graduated with honors, I served as student body president. On 
paper, it looked like I was on a solid path to employment and 
prosperity.
    It was not until my second year out of college that I was 
faced with the economic impacts of student debt. In 2012, I 
needed to fix my car. I realized I did not have enough flexible 
income to pay off my car, maintain it, as well as pay my 
student loans that month. I borrowed more money, went into 
further debt, and without the help of my family, I would not 
have stayed afloat.
    Another awful reality for many young Americans is going 
into student loan delinquency. For me, what sent me into 
delinquency was not my car repair; it was when the Federal 
Government sold my loans to Sallie Mae. That month I had 
already sent my check to the U.S. Government and in the process 
of selling my loans, my check was not forwarded to Sallie Mae.
    It took me about 6 months to figure out how to get out of 
delinquency, where I was supposed to be sending my checks, how 
much the checks were supposed to be for. This negatively 
impacted my credit score, which has taken a great amount of 
work to correct.
    Others often ask me why I have not moved to income-based 
repayment. I tell them, first, that I did not know that was an 
option for about 2 years out of college, and secondarily, that 
I do not necessarily trust the Government's current system to 
support me through that process and keep a good credit score at 
the same time.
    The reason that we are here today is to discuss how student 
loan debt impacts, specifically, housing. My student loans 
harshly impact my financial mobility. Once I graduated, got 
through delinquency, started making regular payments again, and 
got a raise, I looked into some of the options that would allow 
me to improve my financial security.
    In Portland where I live in a low-income neighborhood, 
there are grants and programs for young women who want to own 
their own condo or house. I meet all the criteria necessary. I 
have good credit, I have a little savings, I have minimal 
expenses, I am low-income, and I do not have credit card debt.
    I went through the whole process and I was told I was an 
ideal candidate, but that my debt-to-income ratio was too high. 
My student loans are my only debt. I pay rent each month now 
and I could be paying off a small condo and creating security 
for my future. But my student loans keep me from that option.
    Student loan is crushing the American dream that higher 
education was meant to foster. Young Americans are drowning in 
student loan debt and we do not really--we do not just face 
dreams deferred, we face dreams that are destroyed. And when I 
think about how student loan severs the options of so many 
tenacious young people, I think about one colleague in 
particular.
    This young woman started at a community college and is now 
about $20,000 in debt. She left out of necessity to pay off 
private loans. She did not want to leave school. Then an 
unexpected expense in her life created a default on her loan 
that sent her into a collection agency and eventually wage 
garnishment, leaving her on that edge.
    This woman is smart, she is Native American, she can juggle 
the mentorship of 13 community college campus leadership 
centers, and she would prefer to be in school. But she cannot 
work toward that degree because tuition is too high and her 
debt load is too great.
    And I work with another student who is a current student. 
She is very passionate. She works with mentor LGBT youth and 
lobbies our State legislature on behalf of students who deserve 
a more affordable education. But this student will not be 
working with us anymore because she needs to pick up an extra 
job to cover her increased costs.
    She grew up in the foster care system in central Oregon. 
She was homeless for a time. She needs to spend time in college 
building trusting relationships and networking with an 
organization like us, but she will not be doing that. And she 
looked at me and cried just this past weekend. She said, I am 
done with my sophomore year, I have $15,000 in debt, I will 
have $40,000 in debt by the time I am done, and I am just not 
sure this is worth it.
    And she would be a great social worker. She is one of the 
people that has the experience and the intelligence and the 
tenacity to be great in that field, but she probably should not 
spend 20 years paying back $400 in loans per month and making 
$40,000 a year.
    I hear a lot of push-back to stories like these and I will 
just close by saying that anyone who thinks these stories are 
the minority, frankly, insults the level to which this crisis, 
the student loan debt crisis in this country has risen. Debt 
relief is only part of the solution. Our Federal and State 
governments should be reinvesting in education, capping tuition 
prices so that this wound stops growing.
    And we should be creating policy at the Federal Government 
that limits administrative bloat and further makes education 
more affordable. The concerns and challenges that are facing my 
generation are pretty broad, but one that is clear for most of 
us is student loan debt, and we would like to work together to 
find solutions. With that, I will close and I will say I am 
happy to take any questions and thank you for the opportunity 
to testify.
    Chairman Merkley. Thank you very much for sharing your 
story and that of others. Mr. O'Sullivan.

     STATEMENT OF RORY O'SULLIVAN, DEPUTY DIRECTOR, YOUNG 
                          INVINCIBLES

    Mr. O'Sullivan. Good afternoon, Chairman Merkley. Thank you 
very much for the opportunity to testify before you today about 
issues that are critical to young workers and the U.S. economy. 
I am grateful to represent Young Invincibles. We are a national 
nonprofit organization dedicated to expanding economic 
opportunity for young adults across the country, and committed 
to identifying economic solutions that work for our generation.
    I would like to add one more story to the many compelling 
ones that Emma shared of a man named Dustin
    Taylor who grew up in Washington, DC. He is 33 years old 
and is burdened by $50,000 in student loan debt. Now, Dustin is 
another example of a young person who worked hard, did things 
the right way, got a Bachelor's degree, got a Master's degree, 
in fact, from Johns Hopkins University, but is now stuck 
waiting tables at a comedy club to pay the rent.
    Dustin did all the things the right way, but because of the 
economic challenges facing young people, has struggled to get 
ahead despite his effort, and I think--we think that it really 
exemplifies, or Dustin's story really exemplifies a lot of the 
challenges that our generation is facing.
    If you can think, just one-third of young people out there 
actually have even a Bachelor's degree, young people without a 
Bachelor's degree or a 2-year degree are struggling even more 
than those with more education. And there is really three 
points that I would like to make to you today about some of the 
major trends that we are seeing with young people in the 
economy as well as some of the policy solutions that are out 
there. We think that we can get our generation back on track.
    So the first one to realize is that we are seeing both 
short-term and long-term challenges right now. I think everyone 
is well-aware that the Great Recession really dealt a blow to 
young adults more than anyone else, and unemployment rates for 
young people ages 18 to 29 are still in double digits several 
years after the recession officially ended.
    But this is not the whole story. In fact, for younger 
workers, unemployment rates are much, much higher, and 
particularly for young workers of color. So just last month, in 
May of 2014, African Americans ages 16 to 24 were facing a 
stunning 23.8 percent unemployment rate. But it gets even worse 
than that and the reason is that we are seeing these problems 
that have been building for quite some time that have been 
massed by the onset of the Great Recession.
    The Congressional Research Service did a study and they 
found that about 60 percent, so about six in ten, young adults 
ages 16 to 24 back in year 2000 had some kind of job at all. 
And then when you take a look at the chart, you realize that 
that number starts to fall pretty dramatically during the dot-
com crash and it never really recovers in the decade leading up 
to the Great Recession and then it falls off a cliff.
    So today, well under half, only 46 percent of young people 
ages 16 to 24 have any kind of job, 14 percentage points lower 
than it was just over a decade ago. So there are just a lot 
fewer job opportunities out there for the young people that are 
not even captured in the unemployment rate, and we think the 
longer trend that is driving that is that there is just more 
skill and education that you need to get that first foothold in 
the labor force than you ever have. It is that much harder for 
our generation to just get ahead.
    And this brings me to the second key point, is that even as 
it is more important than it has ever been to get some kind of 
credential after high school, whether it is a 2-year or a 4-
year degree, it is getting that much harder because of the 
rising cost of college and skyrocketing student loan debt.
    We know that public college tuition, on average, has 
tripled since 1981, accounting for inflation, and this is a big 
reason why you are seeing skyrocketing student loan debt of 
$1.2 trillion. Another big contributor to that is that States 
have cut their budgets--all but two, in fact, did--during the 
Great Recession that has put more emphasis on students and 
families that take out student loans to be able to finance 
higher education.
    While this certainly has a big impact on individuals, if we 
do not fix this problem we are all going to pay for it in the 
long run. The Young Invincibles did a report just a few months 
ago where we calculated what the cost is to State and Federal 
budgets of having so many young people out of work at one time, 
and we figured out that we are losing $25 billion a year, 
almost entirely in tax revenue, because of extreme levels of 
youth unemployment. So we are all really in this together and 
we all have a stake in this problem.
    Briefly, I would just like to close on the third major 
point about a lot of the opportunities that are out there, 
there really are a number of initiatives that Congress could 
take to give our generation a hand-up and help get back on 
track. Obviously, protecting Pell grants is a core foundation 
of Federal financial aid. It helps make tuition affordable for 
millions of young people out there and that should be a huge 
priority.
    Incentivizing States to up the investment they make and 
hold down college tuition is another big opportunity that 
Congress could take in the Higher Education Act re-
authorization hopefully coming up this year that we think could 
have a big effect. Obviously, as Senator Warren has taken a big 
leadership role on, making sure that borrowers who currently 
have that debt can afford their monthly payments is a huge 
priority as well.
    And then finally, I would just close. There are--you know, 
you do not have to get a 4-year degree to be successful. There 
are lots of credentials in 2-year degrees and apprenticeship 
opportunities that have been shown over and over again, if it 
is in an in-demand field, a field that is growing, it can 
actually lead to some very good wages. It is often cheaper on 
the front end for young people to afford and a lot of 
opportunity for Congress to invest in some of these alternative 
pathways that can help get our generation back to work.
    So I will close there. Thank you again for having me and 
very much looking forward to taking your questions.
    Chairman Merkley. Thank you very much, Mr. O'Sullivan. Dr. 
Shierholz.

   STATEMENT OF HEIDI SHIERHOLZ, ECONOMIST, ECONOMIC POLICY 
                           INSTITUTE

    Ms. Shierholz. Thank you, Chairman Merkley, Senator Warren, 
I appreciate the opportunity to be here today to discuss young 
workers. The Great Recession officially ended 5 years ago this 
month, but the labor market has made agonizingly slow progress 
toward full employment, and the slack that remains in the labor 
market continues to be devastating for workers of all ages.
    The labor market is headed in the right direction. It is 
improving, but the job prospects for young workers remain dim. 
And I think it is important to note that there has actually 
been little evidence that young workers have been able to 
shelter in school from the labor market effects of the Great 
Recession. Enrollment rates are no higher now than they were 
before the recession hit, and before the recession, they had 
been increasing for decades.
    Given the ongoing weakness of job opportunities, this lack 
of a Great Recession-induced increase in enrollment means there 
has been a large increase in the share of young workers who 
have been idled by the Great Recession. They are neither 
employed nor enrolled. It is sort of both paths, both key paths 
that you think of young people can take. A job or more school 
to set them up to continue preparing for their futures have 
been cut for a large share of young workers.
    For young high school graduates, the share who are neither 
employed nor enrolled in college is now 17.7 percent. For young 
college graduates, it is 11.2 percent. These high rates of 
idleness of young adults represent an enormous loss of 
opportunities.
    Another key point is that college does not necessarily 
protect young people from high un- and underemployment and weak 
competition growth. So as with basically all groups, 
unemployment of young graduates is generally improving--young 
college graduates is generally improving, but very slowly and 
remains very high relative to where it was in 2007.
    Furthermore, many college graduates are working in jobs 
that do not require their college degree. And even further, the 
wages of young workers with a college degree, while higher than 
those without one, have declined dramatically since 2007 and, 
in fact, have not seen any growth for over a decade. A college 
degree is no guarantee protection against either the increasing 
income inequality since 2000, or today's weak demand for work 
to be done.
    One thing, the large increase since 2007 in un- and 
underunemployment of young college grads tells us is that 
today's unemployment crisis is not being caused by workers 
lacking the right education or skills. There are a huge number 
of newly minted college grads, even many with stem degrees that 
employers simply do not need.
    What this says is that unemployment among young workers is 
not about them not having the right credentials. It stems from 
weak demand for goods and services which makes it unnecessary 
for employers to significantly ramp up hiring.
    Another key point that others have mentioned is that 
graduating in a bad economy has long-lasting economic 
consequences. Research shows that entering the labor market in 
a severe downturn can lead to reduced earnings for the next 10 
to 15 years. This means that because of their unlucky timing, 
through no fault of their own, the cohorts entering the labor 
market after 2007 will likely face at least another decade of 
weak labor market outcomes.
    Furthermore, the effects of the Great Recession have meant 
that more young people are strapped with greater student debt. 
Between 2007 and 2012, median family income dropped 8.4 
percent, which likely means more dependence on loans to cover 
the cost of education. Additionally, there was a huge loss of 
wealth when the housing bubble burst, making many parents no 
longer able to take out home equity loans to help their 
college-educated kids pay for college.
    At the same time, higher education costs increased to make 
up for funding cuts during the downturn. For example, between 
2007 and 2012, State appropriations for higher education per 
student fell by 27.7 percent. And in response, public colleges 
and universities have had to steeply increase tuition.
    And then finally, I think it is useful to note, as others 
have, that the unemployment rate of workers under age 25 right 
now is around twice as high as the overall unemployment rate. 
But a key thing to note is that that is actually always true. 
In good times and bad, the unemployment rate of people under 
age 25 is about twice as high as the overall unemployment rate.
    What that means is that the unemployment of young workers 
is extremely high today, not because of something about the 
current economy that is hurting them in particular, but because 
young workers always have unemployment rates substantially 
higher than the overall unemployment rate, and this happens to 
be the longest and most severe downturn that this country has 
experienced in three generations.
    So what that means is that one thing that will quickly 
bring down the unemployment rate of young workers is strong job 
growth overall. The reason that is not happening right now is 
actually really simple: Employers have not seen demand for 
their goods and services pick up in a way that would require 
them to bring on additional workers.
    Employers are smart. They will hire exactly when they see 
demand for their stuff, pick up in a way that would require 
them to have more people. So to help young workers, policy 
makers should focus on policies that will generate demand for 
U.S. goods and services. In the current moment with interest 
rates near zero, these are policies such as fiscal relief to 
States, substantial additional investment in infrastructure, 
expanded safety net measures, and direct job creation programs 
in communities particularly hard hit by unemployment.
    To give young people a fighting chance as they enter the 
labor market during the aftermath of the Great Recession, a key 
thing we should be focusing on is boosting demand.
    Chairman Merkley. Thank you very much. Dr. Hall.

   STATEMENT OF KEITH HALL, SENIOR RESEARCH FELLOW, MERCATUS 
               CENTER AT GEORGE MASON UNIVERSITY

    Mr. Hall. Chairman Merkley, Ranking Member Heller, and 
Members of the Committee, thank you for the opportunity to 
discuss the economic conditions facing young workers and recent 
graduates. The Great Recession officially ended 5 years ago 
this month. Unfortunately, since the end of the recession, we 
have seen one of the weakest economic recoveries on record.
    This morning's GDP release was an unfortunate reminder, as 
we just found out that GDP declined by 2.9 percent in the first 
quarter of this year, a bigger decline than at the start of the 
Great Recession, in the first quarter of 2008. Unless growth 
recovers and job creation improves significantly, we are years 
away from a full labor market recovery.
    For youth, there has been essentially no improvement in the 
labor market over the past 5 years. Today the employment rate 
for those aged 18 to 29 is just 63.9 percent. This is actually 
lower, much lower than it was at the end of the recession. Not 
the beginning, but at the end of the recession. It is lower 
than that. To fully recover, we need an additional $3 million 
new jobs for the young.
    I want to talk about three things briefly today in my 
testimony. First, I want to talk about the importance of 
stronger economic growth. The labor market problems that youth 
face do not primarily stem from a lack of education or 
inadequate skills. Although wage growth has been inadequate and 
many working youth are underemployed relative to their job 
skills, their number one problem remains a lack of jobs. The 
lack of jobs, the inadequate wage growth, and significant 
underemployment have all resulted from inadequate economic 
growth.
    Second, I want to talk about disengagement from the labor 
force. The unprecedented disengagement that we have seen from 
the labor force is the biggest ongoing economic challenge that 
we face today. Labor force participation is at its lowest level 
in 35 years and it is not just baby boomers. The youth are a 
major part of this.
    I believe that we cannot have robust economic growth and 
maintain our standard of living without getting millions of 
workers back into the labor force. If youth in particular do 
not reenter the labor force soon, we may wind up with a 
permanently smaller workforce and a lower standard of living in 
the future.
    Third, I want to talk about economic policy in the young. 
We need to consider the impact of any economic policy change on 
the young, particularly the millions that have never worked, 
because labor markets discriminate against those who have no 
work experience, and policies that raise the cost of hiring to 
businesses are particularly counterproductive to youth 
employment.
    This also goes for policies that incentivize those who have 
dropped out of the labor force to remain disengaged. As the 
Congressional Budget Office and others have estimated, the 
impact of things like raising the minimum wage and implementing 
the Affordable Care Act may push millions out of the labor 
force.
    The labor market situation in the young will never be back 
to where it should be without stronger economic growth and 
stronger job growth. The young are always far more affected by 
an employment crisis than older workers. Improved labor market 
performance by the young cannot happen without a stronger labor 
market.
    The large number of long-term unemployed, including many 
who have never worked, remains historically high and is 
unlikely to improve significantly without stronger job 
creation. Today, just 63.9 percent of youth are employed and 
job prospects remain so bad that many have withdrawn from the 
labor force and do not even show up in the official 
unemployment rate statistics.
    This decline in participation since 2007 means that there 
are about 2 million young workers, young workers, missing from 
the labor force. If not left uncounted in the official 
unemployment rate--and they probably should be counted this 
way--but if they were not left out of the unemployment rate, 
these 2 million would raise the youth unemployment rate from 
its current 10.9 percent to 15.4 percent, well above their 
highest rate in over 65 years.
    It is well-established that the longer an individual is 
not--is out of the labor force, the less likely they are to 
return to employment, or in this case, ever enter the 
workforce. Currently 1.2 million of the unemployed are trying 
to find work for the first time in their lives. Worse, a 
shocking 400,000 of the long-term unemployed have never worked 
before.
    If the labor market does not improve and many of the long-
term jobless youth do not enter the workforce soon, they may 
never work. This youth disengagement from the labor force poses 
a real problem and not just for the young, but for the future 
performance of the U.S. economy. A permanently small workforce 
would impact economic growth, income growth, possibly even 
lower our future standard of living.
    Economic forecasters have, for years, predicted a slowing 
of the U.S. economic growth as baby boomers retire. If youth 
labor force participation does not improve and take up the 
slack when baby boomers retire, the forecast of declining 
growth will be even more dramatic.
    The solution for youth, of course, must, of course, include 
stronger economic growth and a stronger labor market. While a 
stronger economy is necessary, it may not be sufficient to 
achieve a full labor market recovery for the young, because 
besides just generally good economic policy, I do support the 
idea of focusing some policy attention on the young and on the 
long-term unemployed, and this is for two reasons.
    If youth participation in the labor force remains low, we 
are in danger of having a large number of young that will never 
work. And second, there is plenty of evidence that those 
unlucky enough to be graduating into a poor labor market, but 
lucky enough to have work of some sort in the past have 
experienced lower earnings for a decade or longer.
    If this happens again with this generation, they will have 
lower levels of income, lower levels of spending, lower home 
ownership, and be less prepared when retirement comes.
    Chairman Merkley. Thank you all very much for your 
testimony and touching on so many points that our youth are 
facing. As you were talking, it sounds like the perfect storm 
in a way, a recession that has eliminated many living wage 
jobs, that reduced the ability of parents to help pay for 
college, that reduced State support for schools so schools 
start charging more tuition.
    So therefore, not only does student debt start out as a 
substantial source of the way to pay for college, but it 
increases as a result of the fact that tuition is higher and 
parent support is lower. Then to come out of that situation and 
face low job prospects or modest wages is certainly a 
challenge.
    Emma, I want to start with your story. You noted that 
income-based repayment was not a solution, in part, because you 
were concerned it might hit your credit score. It was not a new 
thought for--I had not heard that expressed before. But I 
wanted to ask a broader question about income-based repayment.
    There is a concept that a group of students proposed in 
Oregon called Pay it Forward, which is a form of income-based 
repayment. It basically says, instead of a loan, you get a 
grant, but in exchange for the grant, you make a commitment to 
contribute to a fund for the next generation, and the amount 
you contribute is a percentage of your future earnings. 
Therefore, it is very similar to adjusting your loan payments 
based on your income.
    The thing that strikes me about that is that it relieves 
the anxiety of being trapped, the potential of being trapped by 
high monthly loan payments and modest wages, the very trap that 
so many find themselves in right now.
    That anxiety seems to be based on--it is not a groundless 
fear. It is a fear well-grounded in the real impact or 
structure of our economy right now. But not only does it affect 
students when they come out of school, it affects the 
aspirations of students who are enroute to, say, higher 
education who are pondering whether or not they should pursue 
that course. And one of you shared a story about that.
    So let me start here and I will ask each of you to respond. 
Does expanding an income-based repayment structure where loans 
are, the monthly payments are adjusted downwards if your future 
income is low, or a pay it forward grant concept, does that 
hold some promise for addressing the concerns over this student 
loan debt trap?
    Ms. Kallaway. I am happy to start, Senator.
    Chairman Merkley. Thank you.
    Ms. Kallaway. We worked on the Pay it Forward program in 
Oregon and I think that--I think it is one of a few good, 
short-term options. I think that the biggest trap is the debt-
to-income ratio that leaves students from being able to take 
out car loans, being able to make other purchases, and 
especially related to housing.
    That debt-to-income ratio is the biggest impact. So a pay 
it forward grant type system would possibly circumvent that. It 
depends on how you write the policy, and, of course, that is 
being discussed. I personally do not think that that is the 
long-term solution. I think that more affordable education--and 
this is what students in Oregon will tell you--that more 
affordable education up front is what is right, that we should 
stop making money off of Federal student loans.
    It should not be a form of income for the Federal 
Government. And that more affordable education allows for 
students to pursue graduate degrees, to pursue further 
education, to move quickly into fields that are right for them, 
as opposed to ones that are the highest paying.
    Right now we have students who are choosing not to become 
social workers and firefighters and nurses because their debt-
to-income ratio will just be too high. And so, I think that we 
need to focus on making education more affordable, not just 
find a way to pay for expensive education.
    Chairman Merkley. Thank you. Anyone else want to jump into 
that conversation?
    Mr. O'Sullivan. Yeah, I would love to jump in. First, just 
to start off, I want to thank you, Mr. Chairman. I know you 
have a bill that would dig deeper into these issues and start 
to study how the Federal Government could support some of these 
programs at the State level, and we appreciate your work on 
that.
    And we also think that there are some options at the 
Federal level, as you noted, some opportunities to expand 
income-based repayment. I think Emma is absolutely right. It is 
not going to solve the issue of college costs. That is a 
separate one, but we do have the repayment challenge as well.
    You know, about one in seven borrowers right now are 
defaulting within 3 years of when they leave school on Federal 
student loans, which is a pretty shocking statistic, and it 
goes even higher when you consider people who are delinquent on 
their loans. So obviously something is not working.
    And we think that one of the challenges, as Emma pointed 
out, a lot of students, we hear, all the time are surprised to 
learn that there are some of these income-based repayment 
options and that in a lot of cases, the flexibility of paying 
back based on your income would help a lot more borrowers than 
automatically putting them in a 10-year standard plan that 
assumes that they do not graduate during a recession, that they 
get a good job, you know, within 6 months of leaving school, 
and never have anything happen in life that would make them 
lose that job.
    And so, we actually at Young Invincibles would support, 
with some adjustments to the formula, putting everyone into an 
income-based repayment plan at the Federal level, including 
making sure that we have the right safeguards in place so that 
we take care of any unintended consequences, but think that 
would be a much more flexible system actually than the one that 
we currently have.
    Chairman Merkley. Do you believe that that would have an 
impact on the inspirations of students in high schools?
    Mr. O'Sullivan. We do and there is actually some really 
limited research on this, the few people that know about this. 
There is a study that came out on some changes that we have 
made to repayment programs and comparing it to changes in 
interest rates, and found out that--or the theory is, at least, 
if you tell students, Look, no matter what, when you come out 
of school, you are going to be able to afford your loans, and 
we make an adjustment to make sure that you can do that to your 
repayment plan that actually increases college access more 
than, you know, changing interest rates and things like that--
on the front end, I should say. So I think that your instincts 
are right, Mr. Chairman, that it could communicate a message 
that actually encourages more people to attend school.
    Chairman Merkley. I will just expand on this a little bit. 
I live in a working class community and in that sense, as your 
kids participate in sports and so forth, you are talk with a 
lot of parents and hear what other students are thinking. I 
have heard a number of parents say, I am not sure I should 
encourage my son or daughter to go to college because I do not 
want them to suffer from debt the size of a home mortgage. They 
may never escape that.
    That sentiment crushes aspirations because students who 
absorb that lesson, it is the opposite of what I heard from my 
working class father which was, Go through those school doors 
and work hard. There is an opportunity to do--basically pursue 
anything in America. That is the vision our young folks should 
have and what we are sorely missing. Dr. Shierholz.
    Ms. Shierholz. I will just be quick. I think along those 
exact same lines, when students decide to go to college and 
they are making this big investment in time and money and work, 
they are--I mean, work in college--they are entering into kind 
of a contract that they are going to do all of this and then on 
the other end there is going to be a job there that will let 
them pay off those loans and it will be worth it.
    So an income-based repayment plan shares the risk. It means 
if you are unlucky on the other side, if you happen to enter 
during a recession, that it will not--that there is something 
about that contract that still gets upheld. So I think it is an 
excellent idea and should be expanded.
    Chairman Merkley. And it seems like it has, perhaps, a 
different impact if people know early on that that might be an 
option versus just something they later discover, Oh, maybe I 
can--now I am trapped. Can I reduce my payments, in terms of 
the aspirations of students.
    Mr. Hall. You know, I do not want to dismiss the problems 
of student debt and high rising tuition. It is a real problem. 
But keep in mind that these are symptoms of a disease. The 
disease itself is a lack of job growth. All right? The reason 
for students to go get these loans is because they anticipated 
that they would get jobs, that they would have a reasonable 
labor market to move into.
    And until you solve this labor market problem and get the 
young reengaged back in the labor force and get hiring going 
again, this problem is not going to go away. You are going to 
have this continuing symptom.
    Chairman Merkley. A point taken, and one of the things we 
have seen is that in the last recession, 60 percent of the jobs 
we lost were living wage jobs and only 40 percent of the jobs 
we got back were living wage jobs. So even though we have 
gotten--we are now back up to about the number of jobs we had 
before the 2008 crash. A lot of them are minimum wage jobs, 
near minimum wage, low to no benefits, part-time, and not a 
solid foundation for raising a family or, for that matter, for 
paying down your student loans.
    But this point, and I may have been mispronouncing your 
name, Dr. Shierholz?
    Ms. Shierholz. Yes.
    Chairman Merkley. Got it. OK, great. You talked about how 
demand drives the economy, and we have had these competing 
theories of, Well, if the money goes to those at the very top, 
they will be the job creators and they will create jobs. I feel 
like if that were true, we would have all the jobs we could 
possibly want right now since that is where an enormous 
concentration is, at the very top.
    Your point was, companies are not going to crank up 
manufacturing or services if there is not the demand, and that 
there is kind of a downward cycle, the opposite of what we saw 
after World War II. World War II, we had increasing consumer 
demand, employment cranked up, increased consumer demand per 
cycle.
    And so, Dr. Hall, you are also weighing in on this core 
challenge, which is probably broader than the context of this 
hearing, but very--because it affects not just the young out of 
college. I mean, it is affecting our whole society, but very, 
very relevant and lots that we need to be concerned about, 
because no Government program can compare to the value of a 
good living wage job.
    So let us turn to home ownership. You mentioned, Ms. 
Kallaway, from your personal story that you sought to buy a 
home, but as you put it, the debt-to-income ratio did not allow 
it. So we are seeing a delay in home ownership. And so, this is 
a hidden factor that will affect the wealth of an entire 
generation, because when folks become home owners early, their 
equity increases over time as they pay down their loan. Their 
house improves in value, and that becomes, for many, many 
middle class families, a major source of savings.
    But if people delay home ownership, you buy it at a higher 
price, you pay it down later. That affects all of that. Do any 
of you want to speak to kind of the statistics in which we are 
seeing lower rates of home ownership, in part, because of the 
burden on the--well, one, the lack of living wage jobs for 
students combined with the student debt?
    Mr. O'Sullivan. I would be more than happy to, and do 
appreciate the question. I think one of the more shocking 
trends that we have seen, it used to be that if you had student 
loan debt, you were actually more likely to own a home than 
folks who did that not and that was because--you were more 
likely to have gone to college and, you know, had the wage or 
being able to command the wage that would enable you to afford 
a house. And that, the Federal Reserve, has recently shown has 
now switched and you can just see the chart. It is pretty 
shocking.
    Now people who are age 30 who have student loan debt are 
actually less likely to own a home than people who do not, and 
a pretty significant difference, I think, speaks exactly to 
your point, that we would expect to see some major economic 
consequences as a result.
    Ms. Shierholz. I can add just on the statistics front. 
There is a paper by researchers at the New York Fed who show 
that with the rise of student loan debt and the rise in 
delinquency, that that has been associated with a decrease in 
mortgage borrowing. So they are suggesting that there has 
indeed been some crowd-out of mortgage--of other investments by 
young people due to rising student debt.
    Mr. Hall. I can tell you a little bit about the statistics 
on home ownership. First of all, according to the Federal 
Reserve, when the recession hit between 2007 and 2010, for 
those aged 35 and under, they lost 41 percent of their wealth 
over that time period. It was a huge wealth hit for the young.
    And what we have got right now is for those 35 and under, 
we have the lowest home ownership rate ever recorded since--and 
they have been keeping this data since 1994. So it is probably 
the lowest home ownership rate for the young ever. And that is 
clearly a consequence of wealth loss and then, of course, the 
poorly functioning labor market.
    Chairman Merkley. So, because--I apologize that we started 
late because of the votes scheduled this afternoon. I am going 
to turn this over to Senator Warren, but we both have an event 
coming up in the very near future, so keep your answers crisp 
for her so she can cover as much territory as possible. I am 
going to close my participation now just by saying thank you so 
much. We are just scratching the surface of this.
    We have a big turn-out of young adults in the audience. How 
many of you have student loan debt that you are concerned about 
paying off?
    [Hands of audience raised.]
    Chairman Merkley. Yeah, yeah. This is affecting an entire 
generation, this is very relevant, and we are going to continue 
this conversation because these issues are not going away. 
There is no silver bullet or short-term fix and we are going to 
have to keep striving. One of the individuals who is really 
helping push the U.S. Senate to address this, and particularly 
to take on the high cost of student loans, is my colleague, 
Senator Warren.
    Senator Warren [Presiding]. So thank you very much, Mr. 
Chairman. I apologize as well. The schedule has just gotten 
torn up today, and so we are kind of stacking events here.
    So let me start with this: Several of you have highlighted 
the impact of student loan debt on young workers and the fact 
that data is starting to show, studies are starting to show 
that the mountain of student loan debt is keeping young people 
from moving out on their own, from buying houses, from starting 
businesses, and helping our economy grow.
    Recent graduates are the hardest hit. Not only do they have 
record-breaking debt levels, they also graduated into a weak 
economic labor market, and so they get hit with high 
unemployment and low wages. Now, Dr. Shierholz, you already 
noted that economists predict that this is not a short-term 
problem, that these young graduates will feel the financial 
effects for a very long time to come.
    So the question I want to ask and what I want to be sure 
that we get on the record here is, if a generation of young 
Americans is launching their careers later, facing lower wages, 
and struggling to keep up with student debt payments, what is 
the impact on the economy as a whole? Dr. Shierholz, could I 
start with you?
    Ms. Shierholz. Sure. So the impact on them themselves is 
obvious. You have this reduced----
    Senator Warren. Right.
    Ms. Shierholz. ----earnings for 10 to 15 years. But what 
that means is you are having people that are not working up to 
their potential. That reduced earnings for 10 to 15 years 
becomes, because of greater employment instability, people not 
being on the trajectory that maximizes what they do well and 
what they want to do.
    So you are having people who are not working up to their 
potential and that is a drag on the larger economy. So you are 
just operating below potential when you have a cohort of people 
who have not gotten the job opportunities that they would have 
gotten if they had entered during a boom time.
    Senator Warren. That is right. Dr. Hall, would you like to 
add anything to this?
    Mr. Hall. Sure. All the problems of the young are real and 
they are there.
    Senator Warren. I am sorry to hear that.
    Mr. Hall. Yeah. I know I am just reiterating things, but--
--
    Senator Warren. No, but it is important that we get it out 
there. It is fine.
    Mr. Hall. But it does stem from a poorly functioning 
economy. And the young are not alone. I think I mentioned there 
are about 3 million young missing from the labor force. There 
are probably 4.5, 5 million people overall missing from the 
labor force who ought to be in the labor force right now. So 
the participation rate is very low.
    And you are just not going to get the sort of wage growth 
and sort of job progression that you would like to see with the 
young in a bad labor market. I will give you a really good 
example. Every couple of years, the Bureau of Labor Statistics 
and the Congressional Budget Office, they forecast jobs by 
industry, by occupation.
    One of the things that they found is two-thirds of job 
creation are replacement jobs. There are people who are moving 
on in their career, moving on to retirement. So most jobs 
created for the young are people moving along a sort of career 
ladder. One of the things we have yet to see in this economy is 
the quit rate. It is still very, very low.
    So people are not quitting jobs they would normally quit to 
move on in their careers. In a sense, you have got this career 
ladder that is all getting all backed up because older workers 
have stopped moving and middle-aged workers have stopped moving 
and everybody has stopped moving, and the young are sort of 
getting the second hit in terms of movement through a career.
    Senator Warren. Right. But as we talk about the impact on 
the overall economy, there is a question about whether this 
weak labor force participation and low wage jobs is cause or 
effect or if it is both. That is, people who do not have jobs 
do not drive up demand. They do not buy as many things, they do 
not start their own households, they do not need to get out and 
shop.
    And if there is no demand, then there is no reason to hire 
extra workers. And if you have not hired extra workers, then 
there are fewer workers with jobs to drive up demand. So it 
sounds like to me what we are talking about here is we are 
talking about a spiral that slowly, over time, keeps going 
further down. Is that a fair description, Dr. Hall?
    Mr. Hall. Oh, I think it is, I think it is. And the reason 
I said the biggest problem we face, I think, the whole economy 
is labor force participation, because I think labor force 
participation is low enough now that we have to wonder if we 
can have strong economic growth with this level of 
participation in the labor force if we do not get people back 
in participating in the labor force and getting some more job 
creation.
    Senator Warren. So let us talk then, let us just connect it 
up a little bit. To the extent you have got high student loan 
debt loads and those students are paying high interest rates on 
those loans, is the Government exacerbating the problem? Is it 
making it worse by collecting more from these students who are 
already in difficult circumstances, and therefore, cannot spend 
the money in stores creating demand?
    Mr. Hall. That actually might be the case, and if you are 
going to think about student loans in the future, you might 
think about the notion that sometimes student loans occur in 
bad times and you need to make some adjustments for that. You 
need to think that in a sense, you have given a loan to 
somebody who anticipates a better labor market than they are 
going to have and you need to think about how you are going to 
recover from that.
    Senator Warren. OK. And Dr. Shierholz, would you like to 
add to that?
    Ms. Shierholz. Yeah, just a quick thing. So when you are 
thinking about the impact of debt, you want to think about not 
just the debt, but also income, in other words, people's 
ability to repay. And so, that is where the backdrop of job 
opportunities and wages really matter. When you enter into a 
labor market like this where job opportunities are so weak, 
your ability to repay that loan is not going to be what it 
would be if the job opportunities were strong.
    Senator Warren. So I apologize, but I have just been handed 
three notes in a row that we are going to have to wrap up here, 
that we have all been called somewhere else. But I want to 
thank you all for coming. I want to thank you for highlighting, 
once again, the importance of dealing with student loan debt, 
the importance of thinking about, in a systematic way, what we 
are doing to young people economically in this country by 
driving up the cost of college, by loading them up heavier with 
debt, and then by producing this very weak economy where it is 
hard for them to get their economic footing.
    At least part of this we know how to solve. We can bring 
down the interest rate on student loans, put more money into 
students' pockets, let them get out and spend a little more 
money, which could help that economy go in another direction. 
This is about the choices we are going to make as a country, 
whether or not we are going to keep loopholes open for 
billionaires or whether it makes more economic sense to spend 
that same money to bring down the interest rate on student 
loans.
    I appreciate your being here today. I am sorry that we have 
got to clip this and make it short. But as I said, the schedule 
got a little tangled up and we are all being pulled away.
    We will hold the record open for 7 days, so there may be 
additional questions which I hope you will be able to answer as 
promptly as possible and we will get them into the record. And 
again, thank you very much for being here. This hearing is 
closed. Thank you.
    [Whereupon, at 4:28 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
               PREPARED STATEMENT OF SENATOR DEAN HELLER
    Thank you, Chairman Merkley, for holding this hearing today.
    As a father of four, all of my children have experienced college, 
and my youngest began last fall. I know firsthand the financial burdens 
on students and the difficult job market our youth is currently facing.
    Having the proper education or skills set is a key to success in 
this country. During these tough economic times, Americans find it 
increasingly difficult to pay for college, and graduates find 
themselves burdened with high levels of debt.
    The unemployment rate for 16-24 years olds is twice as high at the 
national unemployment rate, and in one survey, 63 percent of young 
adults felt the American Dream is impossible for them to achieve.
    Mr. Chairman, the best way to help the youth in this country is to 
create jobs. While the solution is so obvious, this Administration 
continues to push a job killing agenda. Washington, DC, is broken and 
has failed not only the graduating classes of 2014, but all the 
graduates in this recession.
    Young Nevadans are frustrated, and they want Washington to start 
enacting policies that will instill confidence in hard-working people 
all across this great Nation. It is not too late to foster an economic 
recovery that will restore confidence back into our youth so they can 
achieve their goals of having a good paying job, buying a home, and 
building their savings.
    Mr. Chairman, last year I was pleased to work with my colleagues to 
find a long-term solution to lower student loan interest rates by 
supporting the bipartisan Student Loan Certainty Act. This law lowered 
rates for all students from 6.8 percent to 3.86 percent for the coming 
year by tying student loan rates to the 10-year Treasury note. It would 
be my hope that instead of partisan posturing, a real bipartisan debate 
on how to address student debt could occur.
    I want to thank all of our witnesses for attending today's hearing 
and look forward to their testimonies. I am hopeful that our witnesses 
will not only assess the current issues our youth are facing but also 
offer reasonable proposals on how we can solve our current problems.
    Thank you Mr. Chairman.
                                 ______
                                 
                  PREPARED STATEMENT OF EMMA KALLAWAY
             Executive Director, Oregon Student Association
                             June 25, 2014
    Good afternoon Members of the Committee, my name is Emma Kallaway. 
I graduated from the University of Oregon in 2010 with $25,000 in 
student loan debt. I am the Executive Director of a nonprofit in Oregon 
called the Oregon Student Association. OSA represents more than 120,000 
college students across the State. Each student pays dues into this 
statewide organization fighting for a more affordable postsecondary 
education. We focus on the leadership development of Student Body 
Presidents and new student leaders who advocate for affordable tuition, 
increased financial aid, limited administrative bloat, and other cost 
cutting measures.
    Today I would like to share with you the financial impacts that 
student loan debt has had on my life and what affordable education 
advocacy looks like for students in Oregon.
    My education has always been colored by my diagnosed dyslexia. When 
I wanted to go to college there was only one teacher who thought I 
could go and only one school on the west coast that could support my 
seemingly impossible desire for a college degree. Luckily, the 
University of Oregon has one of the top disability services programs in 
the country.
    During my tenure at the University of Oregon, tuition went up at 
least 50 percent for in-State students. Out of State students saw an 
even greater and unforeseeable increase. I received academic 
scholarships, worked two jobs on campus, and took classes full time. 
Still I left school with $25,000 in debt. I pay $200 a month in student 
loans and I bring in $2,000 a month in income after taxes. My story is 
pretty typical.
    My degree is in business administration, I graduated with honors, 
and served as Student Body President my senior year. On paper it looked 
like I was on a solid path to employment. I chose a career in the 
nonprofit sector because I could gain considerable responsibility and a 
quick path to management. I accepted the lower salary in exchange for 
the experience I was seeking.
    I grew up in a traditional Catholic home, my Ma is Italian and my 
Dad is Irish, culturally we don't talk about money and debt is 
shameful. So I didn't start talking about debt management with any of 
my friends until recently. It wasn't until my second year out of 
college that I was faced with the first negative impacts of my 
financial choices. In 2012, I needed to get my car fixed, many young 
people's first real surprise cost if you're lucky like me. I realized I 
didn't have enough flexible income to pay off and maintain my car, and 
pay my student loans that month. I borrowed more money and leaned on my 
family to stay afloat. I will note here that more than half of my full-
time staff live with their family in multigeneration homes because 
their full time salary and student loan payments don't allow them money 
enough to pay rent and other expenses.
    What is also becoming all too common is going into delinquency. 
What sent me into delinquency wasn't my car breaking down, it was when 
my Federal Government loans were sold to Sallie Mae, a private company, 
which notified me via postmail. Like many low-income students, I moved 
every 9 months in college and the fact that the letter eventually got 
to me was a miracle. That month I had already sent my check to the U.S. 
Government, which was in the process of selling my loans, and my check 
did not make it to Sallie Mae. It took me 6 months to figure out how to 
get out of delinquency and where I was supposed to be sending checks 
each month and for how much they were supposed to be. This negatively 
impacted my credit score, which I now have to work hard to improve. 
Others often ask me whether I would move to income based repayment and 
I tell them that I didn't know that was an option for years and I 
wouldn't trust the Government's current system to support me in keeping 
a good credit score in that process.
    The reason we are here today is to discuss how student loan debt 
impacts the economy and specifically housing. My student loans impact 
my financial mobility. I was the first of my cousins on the Irish side 
to graduate from college. My dad received his degree nontraditionally 
while I was a kid so although my parents were amazing and went to every 
parent training available there was still very little experience to 
help me figure out school, let alone the level of unanticipated debt I 
would accrue.
    Once I graduated, got through delinquency, started making regular 
payments, and got a raise, I started looking into options to improve my 
own financial security. In Portland, there are grants and loan programs 
for young women who want to own their own condo or house. I meet all 
the criteria necessary. I have good enough credit, I have a little 
savings, I have minimal expenses, I am low income and I don't have 
credit card debt. I went through the whole process and I was told I am 
an ideal candidate for these programs, but my debt to income ratio each 
month is too high. My student loans are my only debt. I have to pay 
rent each month when I could be paying off a small condo and creating 
security for my future, but my student loans keep me from that 
opportunity.
    In Portland, the average home owner makes $60,000 annually. I don't 
see how my situation can change unless I go back to school, choose to 
leave public service, or move out of Oregon. I can get creative, I have 
family to support me, but I can feel myself constantly teetering on the 
edge of security and poverty.
    There is a tipping point that I have narrowly escaped so far. The 
difference in my life when making $30,000 a year and someone making 
$27,000 a year is that the person making $27,000 a year in Portland, 
Oregon, has about $300 a month in disposable income. If you left school 
with about $20,000-$25,000 in debt depending on your payment plan and 
interest rates you will spend at least $200 of that on student loans. 
That means you have $100 a month for birthday gifts, a donation to the 
charity of your choice, to match the measly amount I can give to my 
church, to pay for medical expenses, to fix a car, deal with theft, 
etc. It doesn't mean you make it home on a $75 bus ride to see your 
family in central Oregon. Young people don't need things to be easier. 
We know that our generation has a reputation of having it easy. I think 
if you talk to most young people you'll find we don't want a hand out, 
we dream of a world where mobility is even an option.
    When I think about how student loan debt severs the options of so 
many tenacious young people I think of one employee of the Oregon 
Student Association in particular. This young woman started at a 
community college, didn't find a clear educational path right away so 
she took credits she didn't need and now has part of a Russian language 
B.A., but no degree and more than $20,000 in debt. She left school out 
of necessity, not by choice. She needed to find work to live and start 
paying some of her private loans back. Working at OSA she makes about 
$26,000 a year and when she had an unexpected expense she defaulted on 
her loan. Without her knowledge the loan company sent her loan through 
a collection agency which resulted in wage garnishment. This woman is 
smart, she is Native American, she can juggle the mentorship of 13 
campus student leadership centers, and she would prefer to be in 
school. She would prefer to be working towards a degree but she can't. 
This story is compounded by the fact that an accident this week will 
saddle her with considerable medical debt. When I arrived at the 
hospital, one of the first on the scene, I brought all her health 
insurance paper work with me because I knew that if we didn't get this 
process started she might not have any life to wake up to. Debt can 
cripple a person's freedom, satisfaction for life, and ability to share 
their professional gifts with the world. The god send of a nurse we 
worked with asked me what I do and she responded by saying, ``I wish I 
didn't have $1,000 of student loan debt to pay each month, I'll never 
get out of this.'' A nurse making at most $60,000 a year and $1,000 in 
student loan payment means her flexible income is almost nonexistent. 
She is not buying a home and if anything happens to her she will be in 
the same boat, just trying to figure out which loan to pay first and 
which collection agency to dodge calls from every month.
    I work with another young person, a current student; she is a very 
passionate young student who works with OSA to mentor other youth and 
lobbies our State legislature of behalf of LGBT students who deserve a 
more affordable education. This student won't be working with us 
anymore because she needs to pick up an extra job to cover her 
increasing costs. Her external employment and community mentorship 
experience were also a distraction from her studies and thus she lost 
her financial aid, meaning she may need to take on a third job. She 
grew up in foster care system in Central Oregon. She needs to spend 
time in college building trusting relationships and a network of people 
like us who could help her get through school. She is not the first or 
last student I will work with that will cry and say, ``I am done with 
my sophomore year, I have $15,000 in debt, I'll have $40,000 by the 
time I am done and I just don't see the point.'' She would be a great 
social worker; she has the experience and the intelligence to sustain a 
long career in that field. But she can't spend 20 years paying back 
these loans at $400 a month making $40,000 a year. This student may 
never buy a home, she will mostly definitely not by a new car, she will 
never move into an income bracket that contributes State or Federal 
taxes that build enough to create quality public education for the 
future. There are long term losses to allowing tuition to rise at this 
level and if you think that high tuition works then you have never met 
students who can't pay it. And honestly as much as I believe in a 
college education I could not look this student in the eye and tell her 
education was going to be worth it. We can't guarantee that and baby 
boomers wonder why young people are wandering through their 20s.
    Many of you might also be curious about student parents. A student 
parent with a child under the age of five, who are often younger 
parents, will pay as much as 10,000 annually for childcare. That is 
equivalent to paying tuition twice to provide childcare while a parent 
is in class. In Oregon we can barely provide 25 percent of the most 
needy student parents a small childcare grant.
    The last story I will share is of a young woman named Alex.
    What's far more important than my story are the stories of students 
who can't finish, those who take on debt with no degree, those first 
generation children of color who need more than a few good teachers to 
get through. Alex is a board member with OSA; she is bright, 
emotionally intelligent, and politically strategic. Alex is a first 
generation college student, raised by a single mother, and she 
identifies as a woman of color. OSA has a board dedicated to the needs 
of students of color and Alex was the chair this past year. She has 
close to $15,000 in debt and won't be finishing because this last year 
has become far too expensive to continue. Alex is going to take a job 
making about $30,000 a year with hopes of going to back to school, but 
the fact is that too few students return to school. Leaving and coming 
back is one of the hardest things a person can do. Once you have debt 
and leave school you have to start making payments. Going to school and 
finding a way to make those payments without full time employment is 
nearly impossible.
    Now I have heard the pushback to stories like these. I will say 
that anyone who thinks these stories are the minority insults the level 
to which the crisis of student loan debt has risen in this country. 
Debt relief is only part of the solution. Our Federal and State 
governments should be capping tuition prices so that this wound stops 
growing. A young person, maybe working in an office here in D.C., who 
tells you their $200 student loan payment each month is a reasonable 
investment in their education, is only describing the payment each 
month. What I want you to see is that the payment is a problem as a 
percentage of flexible income to deal with the rest of their life. The 
percentage of flexible income you have is a person's ability to see a 
doctor, to participate in church, take a day off from work when a 2-
year-old is home sick. There is a significant difference between 
$40,000 a year and $30,000 a year and $27,000 a year when loan payments 
range from $200 to $2,000 a month.
    You might be thinking that income-based repayment is a great 
solution except that the hoops are unclear. I don't trust the Federal 
Government to facilitate my loans in a way that won't destroy my credit 
score, and income-based repayment ultimately extends the life of my 
loan, furthering me from financial mobility.
    The answer to improving our economy and housing market is to stop 
making money off Federal loans. Stop treating students as a source for 
Federal income, fund education federally and force our States to fund 
our schools in such a way that drives down administrative bloat and 
maintains a quality education. This means sending Federal directives to 
our States which I hear is uncomfortable politically. This means making 
education a funding priority. This means finding ways to describe to 
the American people why a generation drowning in debt is an emergency 
impacting everyone. I can bring you stories but you are responsible for 
communicating this economic crisis. I hope today is just part of a 
narrative about how the U.S. Government saw the warning shots and sent 
a defense missile to eradicate the impending strike on our economy 
before the student loan bubble bursts.
    I am happy to take any questions and thank you for your time.
                                 ______
                                 
                 PREPARED STATEMENT OF RORY O'SULLIVAN
                   Deputy Director, Young Invincibles
                             June 25, 2014
    Chairman Merkley and Ranking Member Heller, I thank you for 
inviting me to testify before you today about issues central to young 
workers in the U.S. economy. Young Invincibles is a nonprofit 
organization dedicated to expanding economic opportunity for young 
adults, and we are committed to coming up with economic solutions that 
work for young people everywhere.
    In our recent report on the cost of youth unemployment, In This 
Together, we profiled Jonea, a 26-year old from Maryland. Jonea had to 
halt her pursuit of an associate's degree because of her mother's 
diagnosis with breast cancer. \1\ After her mother passed, she 
attempted to finish her degree online, but had to stop again when the 
costs became prohibitive. She worked at a grocery store, but has been 
turned away from retail jobs after being told she was either under- or 
over-qualified. While looking for work, she applied for unemployment 
benefits, but her application was lost in the system. Her story is just 
one example of the millions of hard-working young people who lack basic 
options for economic security through no fault of their own.
---------------------------------------------------------------------------
     \1\ Young Invincibles, ``In This Together: The Hidden Cost of 
Young Adult Unemployment'' (Washington, DC: 2014), accessed June 24, 
2014, http://younginvincibles.org/wp-content/uploads/2014/01/In-This-
Together-The-Hidden-Cost-of-Young-Adult-Unemployment.pdf.
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    At Young Invincibles, we regularly hear the struggles and anxieties 
of young people like Jonea firsthand. Our generation entered the job 
market during the worst economy since the Great Depression, creating 
the possibility that we could be the first generation in American 
history to end up worse off than our parents. The numbers do not lie: 
the national unemployment rate has dipped down under 7 percent, but the 
unemployment rate for 18 to 29 year olds remains at 10.1 percent. \2\ 
Younger workers have even fewer prospects. Young men ages 16 to 24 and 
young women ages 16 to 24 face unemployment rates of 14.2 percent and 
12.2 percent, respectively. For young African Americans the rate is a 
stunning 23.8 percent. Young people experience our Nation's economic 
recovery very differently; it's just not working for us.
---------------------------------------------------------------------------
     \2\ Young Invincibles, ``Jobs Report Shows College Affordability 
Key to Fighting Unemployment'', last modified June 6, 2014, http://
younginvincibles.org/jobs-report-shows-college-affordability-key-to-
fighting-unemployment/.
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    I'll begin my testimony by explaining how these challenges stem not 
only from the Great Recession, but also from long-term structural 
changes that threaten our economic prosperity. I'll then discuss how 
the rising cost of postsecondary education and skyrocketing student 
debt further hamper our economic prospects. If we do not address these 
issues, the long-term implications for our Nation's future are dire. 
Finally, I will introduce several specific reforms that work for young 
people and our country. I urge the Subcommittee to focus on the lived 
experiences of young adults as we improve the economic prospects of our 
generation.
The Short and Long Term Challenges
    There are two essential issues confronting young workers today. 
First, the Great Recession disproportionally impacted young people 
because we are often ``first fired and last hired.'' As mentioned 
above, youth unemployment has remained significantly higher than the 
national average even during the economic recovery, hovering in the 
double digits. Even for those who have secured employment, more than 40 
percent of recent graduates are underemployed or need more training to 
get on a career track. \3\ It's significantly worse for youth of color, 
who face unemployment rates seemingly permanently stuck in the double 
digits and as high as 25 percent among African Americans. \4\ Those 
figures also do not take into account the number of incarcerated youth 
of color.
---------------------------------------------------------------------------
     \3\ Patricia Reaney, ``Youth Employment: Recent U.S. College 
Graduates Disillusioned, Underemployed Says Poll'', The Huffington 
Post, April 30, 2014, accessed June 24, 2014, http://
www.huffingtonpost.com/2013/04/30/youth-employment-recent-us-college-
graduates_n_3186651.html.
     \4\ Young Invincibles, ``Jobs Report Shows College Affordability 
Key To Fighting Unemployment''.
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    Research done at Ohio State University showed that the number of 
young adults ages 20 to 34 who lived with their parents jumped from 17 
percent in 1980, to 24 percent during the Great Recession. \5\ That 
trend was strongest in large metropolitan areas with high living costs 
and high unemployment. \6\ However, it would be a mistake to chalk up 
these figures to the lasting effects of the Great Recession. They are 
emblematic of a larger problem that has developed over decades.
---------------------------------------------------------------------------
     \5\ Ohio State University, ``Great Recession Caused More Young 
Adults To Live With Parents'', last modified August 2, 2012, accessed 
June 24, 2014, http://artsandsciences.osu.edu/news/greatrecession.
     \6\ Ibid.
---------------------------------------------------------------------------
    This second challenge is created by the increasing demand for 
skills and educational attainment, placing young people in precarious 
positions. Young adults often have less skills and experience than 
other members of the workforce, reducing their early job prospects. In 
fact, the unemployment rates discussed above underestimate the problem. 
Another metric favored by economists to evaluate the American 
employment situation is employment to population ratio, which measures 
the proportion of individuals in a certain age group that are employed. 
According to the Congressional Research Service, the employment to 
population ratio of youth 16 to 24 years of age was 60 percent in 2000. 
\7\ That figure eroded throughout the subsequent decade, and by 2012, 
it was down to 46 percent. \8\ Early youth unemployment has negative 
effects on incomes, and young people who enter the labor market during 
severe downturns have relatively lower wages in the longer term.
---------------------------------------------------------------------------
     \7\ Adrienne L. Fernandes-Alcantara, ``Youth and the Labor Force: 
Background and Trends'' (Washington, DC: 2013), accessed June 24, 2014, 
http://www.law.umaryland.edu/marshall/crsreports/crsdocuments/
R42519_07112013.pdf.
     \8\ Ibid.
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    Furthermore, young people who are less educated than their peers 
suffer the harshest consequences. A joint report by Demos and Young 
Invincibles entitled The State of Young America found that a young man 
with a high school diploma today makes 75 cents on the dollar his 
father made in 1980. \9\ According to a 2013 report, 18 to 24 year olds 
without high school degrees face unemployment rates of more than 27 
percent, and underemployment rates of more than 41 percent. \10\ The 
same age cohort with only a high school degree face unemployment rates 
of almost 20 percent and are underemployed at roughly 35 percent. \11\ 
The numbers for 25 to 34 year olds are marginally better, but still in 
the double digits. \12\
---------------------------------------------------------------------------
     \9\ Demos and Young Invincibles, ``The State of Young America: 
Economic Barriers to the American Dream'' (New York, NY: 2011), 
accessed June 24, 2014, http://www.demos.org/publication/state-young-
america-databook.
     \10\ Matt Bruenig, ``The Horrible Youth Labor Market'', April 5, 
2013, accessed June 24, 2014 http://prospect.org/article/horrible-
youth-labor-market.
     \11\ Ibid.
     \12\ Ibid.
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    It's an oft-cited statistic, but one worth repeating: according to 
the Census Bureau, the difference in earning potential between a high 
school graduate and a college graduate is roughly $1 million. \13\ 
Young people know the benefits of higher education, and they know that 
a postsecondary degree makes sense in our modern economy. However, 
rising college costs threaten their ability to get ahead.
---------------------------------------------------------------------------
     \13\ Tiffany Julian, ``Work-Life Earnings and Occupation for 
People With a Bachelor's Degree: 2011'', October, 2012, accessed June 
24, 2014, http://www.census.gov/prod/2012pubs/acsbr11-04.pdf.
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Rising Colleges Costs Exacerbate the Problem
    As the economy has changed, demanding more skills and educational 
attainment, America's higher education system has not kept up. Young 
people understand the essential nature of a postsecondary degree, as 
evidenced by a recent Fed report that showed that the benefits of a 
degree still outweigh the cost. \14\ Aggregate numbers of graduates are 
the highest they've ever been and are projected to grow. \15\ However, 
average public college tuition is three times higher than it was in 
1980, \16\ and every State but three is spending less on higher 
education than they were 5 years ago. \17\ Students and families have 
made up the difference of the cost of college with mountains of debt. 
We're now at $1.2 trillion dollars of student debt as a Nation, and 
growing. \18\
---------------------------------------------------------------------------
     \14\ Katherine Peralta, ``Benefits of College Still Outweigh 
Costs, Study Says'', U.S. News & World Report, June 24, 2014, accessed 
June 24, 2014, http://www.usnews.com/news/articles/2014/06/24/benefits-
of-college-still-outweigh-costs-fed-study-says.
     \15\ Ibid.
     \16\ Demos and Young Invincibles, ``The State of Young America: 
Economic Barriers to the American Dream''.
     \17\ Ry Rivard, ``The Slow Climb'', Inside Higher Ed, April 21, 
2014, accessed June 24, 2014 http://www.insidehighered.com/news/2014/
04/21/few-states-are-spending-more-higher-ed-recession-hit-
sthash.lF6lh3eJ.dpbs.
     \18\ Dan Friedman, ``Americans Owe 1.2 Trillion in Student Loans, 
Surpassing Credit Card and Auto Loan Totals'', Daily News, May 17, 
2014, accessed June 24, 2014, http://www.nydailynews.com/news/national/
americans-owe-1-2-trillion-student-loans-article-1.1796606.
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    $60,000 of that national student loan debt belongs to Daniel Tello, 
who graduated from the University of Scranton in 2008, where he got a 
bachelor's degree in political science. Despite being one of the lucky 
young people able to find work these days, Daniel has struggled with 
his student loan debt. Because he had to rely partially on private 
loans, which do not qualify for income-based repayment, Daniel's 
payments are close to $1,000 a month. And while he is thankful to have 
a job, his salary working in claims litigation at Geico does not pay 
him enough to afford his extremely high debt payment every month. 
That's why Daniel ended up defaulting on his loans and moving back in 
with his parents. He had no other option. That was the only way he 
could get current on his loans. In the longer term, his debt may result 
in the postponing or abandoning of important hallmarks of adulthood, 
like home ownership or starting a family.
    Debt like Daniel's is having effects on the broader economy. Young 
people with student debt used to be able to afford to buy homes and 
cars, but the tides have turned. Now, young people with student debt 
buy homes at a lower rate than young people without student debt. \19\ 
We're also hearing that young adults have stalled important decisions, 
like moving out of their parents' homes, getting married, and starting 
a family, simply because they feel they cannot afford to. \20\
---------------------------------------------------------------------------
     \19\ Dina Elboghdady, ``Student Debt May Hurt Housing Recovery by 
Hampering First Time Buyers'', The Washington Post, February 17, 2014, 
accessed June 24, 2014, http://www.washingtonpost.com/business/economy/
student-debt-may-hurt-housing-recovery-by-hampering-first-time-buyers/
2014/02/17/d90c7c1e-94bf-11e3-83b9-1f024193bb84_story.html.
     \20\ Hadley Malcolm, ``Millennial's Ball-and-Chain: Student Loan 
Debt'', USA Today, July 1, 2013, accessed June 24, 2014, http://
www.usatoday.com/story/money/personalfinance/2013/06/30/student-loan-
debt-economic-effects/2388189/.
---------------------------------------------------------------------------
    Part of the problem is that we're investing less in our generation 
when we need to be investing more. State disinvestment in higher 
education is the main driver of increasing tuition at public 
universities, where the majority of students attend college. 
Nationwide, State higher education funding was down 40 percent in 2011 
from 1980. \21\ The decreases that we have seen in State investment in 
higher education have led to more debt for millions of students, and a 
lack of funding for alternative pathways to success has cut many young 
people off from opportunities that previous generations used to have. 
Compounding the problem is the increase in merit aid given out as a 
tool to attract high-achieving students, at the expense of cutting aid 
for needy students. \22\ Additionally, the Federal Government cut $1 
billion from job training for disadvantaged youth over the past decade, 
and the current training programs reach fewer than 5 percent of the 
nearly seven million disconnected youth in America. \23\
---------------------------------------------------------------------------
     \21\ Thomas G. Mortenson, ``State Funding: A Race to the Bottom'', 
American Council on Education, Winter 2012, accessed July 24, 2014, 
http://www.acenet.edu/the-presidency/columns-and-features/Pages/state-
funding-a-race-to-the-bottom.aspx.
     \22\ Lumina Foundation, ``Restricted Access: Merit-Based vs. Need-
Based Aid'', accessed June 24, 2014, http://www.luminafoundation.org/
publications/focus_archive/focus/merit_based1.html.
     \23\ Young Invincibles, ``A Fight for the Future: Education, Job 
Training, and the Fiscal Showdown'' (Washington, DC), November, 2011, 
accessed June 24, 2014, http://younginvincibles.org/wp-content/uploads/
2012/11/11-14-12-KS-1.pdf.
---------------------------------------------------------------------------
    Another problem is that the higher education system as currently 
comprised does not do enough to provide students with real-world 
experience that they and employers desire. When polled, 79 percent of 
employers expect real-world experience from college graduates when 
evaluating potential hires. \24\ A recent Pew Research survey asked 
students what they wish they had done differently in college to prepare 
them for the job they wanted, and 50 percent they had ``gained more 
work experience.'' \25\
---------------------------------------------------------------------------
     \24\ Thomas P. Miller and Associates, ``Moving Toward an 
Experiential College Work Study Program'', (Indiana: 2012), accessed 
November 12, 2013, http://www.in.gov/ssaci/files/
TPMA_Work_Study_Program_Analysis_Report_Final_(9_19_12).pdf.
     \25\ Eleanor Barkhorn, ``What College Graduates Regret'', The 
Atlantic, February 13, 2014, accessed February 14, 2014, http://
m.theatlantic.com/education/archive/2014/02/what-college-graduates-
regret/283808/.
---------------------------------------------------------------------------
    Young people who graduate in a recession face persistent earning 
losses in their careers. \26\ This is also the time when young people 
are struggling to pay down their student debt. Defaults and delinquency 
are common, and the relief that is available, like Income-Based 
Repayment, is not always available or known to young people. Young 
people have seen their families refinance their mortgages but we cannot 
refinance our student debt. We also cannot discharge our debt in 
bankruptcy, when our credit is already ruined and we have little other 
options for addressing this debt.
---------------------------------------------------------------------------
     \26\ ``Graduating in a Recession'', (no date), accessed June 24, 
2014, http://www.econ.ucla.edu/tvwachter/papers/
grad_recession_vonwachter_oreopoulos_heisz_final.pdf.
---------------------------------------------------------------------------
    The long-term implications of this are staggering, because every 
American has a stake in our generation's success. The unemployment of 
young adults nationwide affects everyone: other generations as 
taxpayers, State governments, and the Federal Government. In a recent 
Young Invincibles report, we estimate that the Federal Government loses 
over $4,100 in potential income taxes and FICA taxes per 18- to 24-
year-old, and almost $9,900 per 25- to 34-year-old. \27\ In total, the 
Federal Government and State governments lose $25 billion each year in 
predominately forgone tax revenue. \28\ That's like each taxpayer 
footing an additional $170 bill for high young-adult unemployment each 
year. \29\
---------------------------------------------------------------------------
     \27\ Young Invincibles, ``In This Together: The Hidden Cost of 
Young Adult Unemployment''.
     \28\ Ibid, p. 6.
     \29\ Ibid. p. 6.
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Solutions
    Ultimately, we need to find a way to make sure more of our 
generation is able to gain work experience and an affordable, quality 
postsecondary credential. We need bold solutions that address the 
rising cost of college, create pathways to success for all young 
people, tackle the problem of debt for existing borrowers who are 
struggling, and improve the economy for all of us. Young Invincibles 
recommends several immediate Federal policy reforms that would benefit 
young people and our economy both now and in the future:
    Bolster and Protect Pell: Pell grants are an essential investment 
the Federal Government makes to provide higher education access to 
millions low income students. \30\ However, as the cost of college 
rises, the purchasing power of Pell continues to diminish. Only 30 
percent of the costs of attending a 4-year university are covered by 
the average Pell Grant, leaving students and families to make up the 
difference with loans. \31\ Making Pell mandatory sends a strong 
message that we refuse to leave our most vulnerable young people 
behind, and that further cuts to aid given to deserving students are 
not acceptable.
---------------------------------------------------------------------------
     \30\ Arnold Mitchem, ``Pell Grants Boost College Access for Low-
income Students but Money Is Only Half the Story'', The Hechinger 
Report, October 11, 2012, accessed June 24, 2014, http://
hechingerreport.org/content/pell-grants-boost-college-access-for-low-
income-students-but-money-is-only-half-the-story_9915/.
     \31\ Sara Goldrick-Rab, ``The Real College Barrier for the Working 
Poor'', Inside Higher Ed, December 10, 2013, accessed June 24, 2014, 
http://www.insidehighered.com/views/2013/12/10/federal-aid-needy-
students-inadequate-essay-sthash.V2Jbf5cY.dpbs.
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    Address State Disinvestment: A prominent cause of rising tuition 
rates has been the gradual State disinvestment across the country in 
higher education. The national funding effort in 2011 was down 40 
percent from what it was in 1980. \32\ This is an unsustainable trend 
across the vast majority of States that is making college less and less 
affordable for millions of students and families, forcing them to take 
on increasing levels of debt. The Federal Government must incentivize 
States to put more money back into their ailing systems to halt and 
then reverse this pattern of trading disinvestment with debt.
---------------------------------------------------------------------------
     \32\ Thomas G. Mortenson, ``State Funding: A Race to the Bottom''.
---------------------------------------------------------------------------
    Also of note, African American young adults suffer from higher 
unemployment and lower wages than their white peers. In an upcoming 
report entitled ``Closing the Gap'', YI discusses how investments made 
in our educational system can disproportionately help young African 
Americans and mitigate disparities in unemployment and wages. 
Increasing educational attainment across the board has a larger effect 
on African Americans than white youth. Policy makers can expand college 
opportunities for all through various reforms designed to simplify and 
fund aspects of the higher education system that benefit disadvantaged 
youth.
    Simplify the Federal Financial Aid Application and Repayment 
Process: The financial aid system is hopelessly complex from 
application to repayment, and in dire need of simplification. We often 
hear that borrower confusion leads to default and delinquency on their 
loans. That is unacceptable in a country that prides itself on making 
it possible for every young person to have access to higher education 
to better his or herself. We urge Congress to make the necessary 
technical changes to streamline the student loan repayment process, 
such as making entry into income-based repayment or pay as you earn 
automatic for the borrower and using payroll deductions to pay down 
student debt.
    Reconnect Opportunity Youth: With over 6 million opportunity youth 
in this country--youth who are not working and not in school--we must 
work harder to come up with innovative alternative pathways to help 
reconnect them to education and job training. \33\ As we look toward 
the 21st century, we have to address the looming deficit of three 
million workers with associate's degrees or higher. \34\ There are 
federally funded programs like YouthBuild and Job Corps, as well as 
nonprofits like YearUp doing valuable work to equip young people with 
viable, marketable skills. The Federal Government must halt the pattern 
of policy making that has seen a billion dollars cut from vital job 
training programs and invest in America's future.
---------------------------------------------------------------------------
     \33\ Tulane University Cowen Institute for Public Education 
Initiatives, ``Reconnecting Opportunity Youth'', May 2012, accessed 
June 24, 2014, https://www.aacu.org/meetings/diversityandlearning/
DL2012/documents/CS11.pdf.
     \34\ Reid Setzer, ``An Alternative to Debt: Apprenticeships'', 
February 5, 2014, accessed June 24, 2014, http://younginvincibles.org/
an-alternative-to-debt-apprenticeships/.
---------------------------------------------------------------------------
    Apprenticeships: Apprenticeship is a great means by which the 
Federal Government can encourage private-public partnerships to help 
develop America's workforce. Apprentices graduate from their programs 
with gainful employment, an accredited degree, money in the bank, and 
no debt. \35\ They are a bipartisan means of involving private 
business, institutions of higher education, and young people in the 
work of building America's capacity to stay a world leader. \36\
---------------------------------------------------------------------------
     \35\ Ibid.
     \36\ Young Invincibles, ``Young Invincibles Hails Bill To Expand 
Apprenticeships, Connect Young Adults to the Workforce'', April 9, 
2014, accessed June 24, 2014, http://younginvincibles.org/young-
invincibles-hails-bill-to-expand-apprenticeships-connect-young-adults-
to-the-workforce/.
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    Alternative Pathways and Innovation: Congress should do its part by 
incentivizing institutions, organizations, private companies, and 
communities to join together and think creatively about specific 
tactics that meet youth where they are and work for them. In a Young 
Invincibles briefing, we highlighted partnerships like that of IBM and 
City University of New York. Together, they recognized an opportunity 
to serve youth in their community from grades 9 to 14, providing these 
young people with high school diplomas, postsecondary training, and 
exposure to industries they wouldn't otherwise have. Updates to 
programs like Federal Work Study and support for quality work 
experiences by State and local governments and institutions of higher 
education is essential to responding to the concerns of employers and 
young people. By incentivizing everyone in communities to join together 
for our generation, action from our leadership in Congress could lead 
to more programs through partnerships that provide 21st century 
opportunities to today's youth.
    Institutional Accountability: We must encourage our institutions of 
postsecondary education to do better. One of the most concerning 
problems for us is that young people often leave school with debt and 
no degree. The Federal Government should not be funding institutions 
that do a poor job of offering access to low-income students, graduate 
students at severely low rates, or see a majority of graduates fail to 
secure jobs that allow them to service their debt. Continuing to 
support the worst of the worst is a poor investment for American 
taxpayers, and has deleterious effects on our generation's ability to 
get credentialed and move fully into adulthood. In addition to 
restricting funds to repeat offenders, incentive structures can be 
designed to reward and highlight the best actors within the American 
higher education community. Congress must find a way to ensure that 
institutions are serving their students responsibly and preparing them 
for the jobs that they need, without saddling them with unnecessary 
debt.
    Relief for Existing Borrowers: With over 40 million people in this 
country with student debt, the time for relief for existing student 
loan borrowers is now. Income-based repayment plans are essential tools 
toward giving our generation badly needed debt relief, but there is 
still more we can do. We hear stories of young parents trying to pay 
down their debt and finding it impossible to save for college for their 
children, young adults moving back in with their parents to afford 
their monthly payments, and young entrepreneurs finding it too hard to 
start a business because of their debt. The irony is that young people 
have seen their families refinance their mortgages but cannot refinance 
our own student debt. And, borrowers who are really struggling can 
declare bankruptcy on credit card debt, car loan debt, or even gambling 
debt, yet cannot declare bankruptcy on their student loans. \37\ 
Refinancing and bankruptcy are commonsense solutions that would help 
get us all on a pathway toward more meaningful economic recovery.
---------------------------------------------------------------------------
     \37\ Kayla Webley, ``Why Can't You Discharge Student Loans in 
Bankruptcy?'' February 9, 2012, accessed June 24, 2014, http://
business.time.com/2012/02/09/why-cant-you-discharge-student-loans-in-
bankruptcy/.
---------------------------------------------------------------------------
    I thank the Committee for giving me the opportunity to share what 
Young Invincibles has learned from working directly with young people. 
I look forward to the discussion.
                                 ______
                                 
                 PREPARED STATEMENT OF HEIDI SHIERHOLZ
                  Economist, Economic Policy Institute
                             June 25, 2014
    Good afternoon Chairman Merkeley, Ranking Member Heller, and other 
distinguished Members of the Subcommittee. My name is Heidi Shierholz, 
and I am a labor market economist at the Economic Policy Institute in 
Washington, DC. I appreciate the opportunity to appear before you today 
to discuss young workers in the U.S. economy.
    The Great Recession officially ended in June 2009, five years ago 
this month. However, the labor market has made agonizingly slow 
progress toward a full recovery and the slack that remains continues to 
be devastating for workers of all ages. The U.S. labor market still has 
a deficit of nearly 7 million jobs, and the unemployment rate has been 
at 6.3 percent or higher for more than 5\1/2\ years. (In comparison, 
6.3 percent was the highest the unemployment rate ever got in the 
early-2000s downturn, for 1 month in 2003.) Though the labor market is 
headed in the right direction, it is improving very slowly, and the job 
prospects for young high school and college graduates remain dim.
In Good Times and Bad, Unemployment Rate About Twice as High for Young 
        Workers
    In economic recessions as well as expansions, the unemployment rate 
of young workers (those under age 25) is typically a little more than 
twice as high as the overall unemployment rate. On average between 1989 
and 2007, the unemployment rate of workers under age 25 was 2.2 times 
as high as the overall unemployment rate (see Figure A). This trend 
persists over time because young workers are relatively new to the 
labor market--often looking for their first or second job--and they may 
be passed over in hiring decisions due to lack of experience. As for 
young workers who are already employed, their lack of seniority makes 
them likely candidates for being laid off if their firm falls on hard 
times or is restructuring. Young workers also tend to be more mobile 
than older workers, moving between employers, careers, or cities, and 
thus spend a larger share of their time as job seekers.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The historical fact that the unemployment rate of young workers 
tends to be a little more than twice the overall rate continues to be 
true today. In May, the overall unemployment rate was 6.3 percent, and 
the unemployment rate of workers under age 25, at 13.2 percent, was 2.1 
times as high.
    This raises two key points. First, because the unemployment rate of 
young workers is typically slightly more than twice as high as the 
overall rate, young workers experience much greater-than-average 
increases in unemployment during economic downturns. When the overall 
unemployment rate is elevated by 1 percentage point, the unemployment 
rate of young workers will likely be elevated by around 2 percentage 
points.
    Second, the dire situation young workers face today is not 
unexpected given overall labor market weakness. In other words, 
unemployment of young workers is extremely high today not because of 
something unique about the Great Recession and its aftermath that has 
affected young people in particular. Rather, it is high because young 
workers always experience disproportionate increases in unemployment 
during downturns--and the Great Recession and its aftermath is the 
longest, most severe period of economic weakness in more than seven 
decades.
``Missing'' Young Workers
    At 13.2 percent, the unemployment rate of workers under age 25 is 
far higher than it was before the recession began; in 2007 their 
unemployment rate was 10.5 percent. However, in today's labor market, 
the unemployment rate--as elevated as it is--drastically understates 
the weakness of job opportunities. This is because there are currently 
a huge number of ``missing workers''--potential workers who are neither 
employed nor actively seeking work simply because job opportunities 
remain so scarce. Because jobless workers are only counted as 
unemployed if they are actively seeking work, these missing workers are 
not reflected in the unemployment rate. The number of young missing 
workers shot up to 1.6 million between early 2007 and early 2010, and 
has since declined slightly to its current level of 1.4 million. It is 
important to note that this calculation of missing workers takes into 
account long-run trends in labor force participation, such as lower 
labor force participation of young people due to increasing college 
enrollment over recent decades. (The methodology for calculating the 
number of missing workers is described in EPI 2014.) But it is also 
true that today's missing young workers have not been able to ``shelter 
in school'' from the labor market effects of the Great Recession. 
Increases in college and university enrollment rates between 2007 and 
2012 were no greater than the increases seen before the recession 
began--and since 2012, college enrollment rates have dropped 
substantially. This is discussed in more depth in the section ``Young 
people are not `sheltering in school.' ''
    Figure B shows that if the missing young workers were in the labor 
force looking for work--and thus counted as unemployed--the 
unemployment rate for young workers would be 18.6 percent instead of 
13.2 percent. In other words, the unemployment rate in today's recovery 
greatly understates how difficult it is for workers to find a job.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

For Young High School Graduates, Very High Unemployment and 
        Underemployment
    Another more comprehensive measure of labor market slack than the 
unemployment rate is the ``underemployment rate'' (officially, the U-6 
measure of labor underutilization). In addition to the unemployed 
(jobless workers who report that they are actively seeking work), the 
underemployment rate also includes those who work part time but want 
full-time work (``involuntary'' part timers), and those who want a job 
and have looked for work in the last year but have given up actively 
seeking work (``marginally attached'' workers).
    Figure C presents data on both unemployment and underemployment 
among young high school graduates (those age 17-20 who are not enrolled 
in further schooling). Currently, while the unemployment rate of young 
high school graduates is 22.9 percent, their underemployment rate is 
above 40 percent (41.5 percent). In other words, in addition to the 
officially unemployed, a significant share of young people either want 
a job but have simply given up looking for work, or have a job that 
does not provide the hours they need.

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Young College Graduates Also Struggle To Find Work, Often End up in 
        Jobs That Don't Require a College Degree
    By attending and finishing college, young college graduates have 
made a significant down payment on their career in terms of both time 
and money, and they typically have very high labor force participation. 
And because a college degree affords more opportunities in the labor 
market--not least of which is the fact that college graduates are often 
more competitive relative to noncollege graduates when it comes to 
landing jobs not requiring a college degree--unemployment among young 
workers with a college degree is substantially lower than among other 
young workers. However, young college graduates' job prospects have 
deteriorated dramatically since the start of the Great Recession.
    Figure D presents unemployment and underemployment data for young 
college graduates age 21-24 who are not enrolled in further schooling. 
Currently, while the unemployment rate of this group is 8.5 percent, 
the underemployment rate is almost twice that, at 16.8 percent. In 
other words, in addition to the substantial share who are officially 
unemployed, a large swath of these young, highly educated workers 
either have a job but cannot attain the hours they need, or want a job 
but have given up looking for work.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Although the measure of underemployment used in Figures C and D--
the U-6 measure of labor underutilization--includes hours-based 
underemployment (i.e., part-time workers who want full-time work), it 
does not include ``skills/education-based'' underemployment (e.g., the 
young college graduate working as a barista). A recent paper by 
researchers at the Federal Reserve Bank of New York (Abel, Deitz, and 
Su 2014) offers insight into skills/education-based underemployment of 
recent college graduates. They categorize occupations according to 
whether the U.S. Department of Labor's Occupational Information Network 
(O*NET) characterizes them as requiring a 4-year college degree, and 
calculate what share of recent college graduates with jobs are working 
in jobs that actually require a college degree. First, it is important 
to note that even in good economic times, a surprisingly high share of 
young college graduates work in jobs that do not require their college 
degree. For example, in 2000--when jobs were plentiful and the 
unemployment rate was 4.0 percent--36 percent of employed college 
graduates age 22-27 worked in jobs that did not require a college 
degree. No matter how strong the labor market is, recent college 
graduates often require some time to transition into the labor market.
    However, the share of young college graduates working in jobs not 
requiring a college degree increased over the weak 2000-2007 business 
cycle, increased further in the Great Recession, and has not yet begun 
to improve. In 2007, 38 percent of employed college graduates under age 
27 were working in a job that did not require a college degree, and 
this share increased to 44 percent by 2012. Furthermore, the 
``noncollege'' jobs that workers with a college degree are ending up in 
are of lower quality now than they used to be. In 2000, half of recent 
college graduates who were in a job that did not require a college 
degree were nevertheless in a ``good'' job that tended to be career-
oriented and fairly well compensated--such as electrician, dental 
hygienist, or mechanic. That share has dropped substantially, while at 
the same time, there has been an increase in the share of recent 
college grads who are in very low-wage jobs, such as bartender, food 
server, or cashier. The bottom line is that for recent college 
graduates, finding a good job has become much more difficult. These 
findings are consistent with other research finding that among the 
workforce as a whole, there has been a decline in the demand for 
``cognitive skills'' since 2000 (Beaudry, Green, and Sand 2013).
    These trends also underscore that the unemployment crisis since 
2007 among young workers more broadly did not arise because young 
people today lack enough education or skills. Rather, it stems from 
weak demand for goods and services, which makes it unnecessary for 
employers to significantly ramp up hiring. For more on the fact that 
today's labor market weakness is due to weak demand and not workers 
lacking the right skills or education, see Shierholz (2014).
Young People Are Not ``Sheltering in School''
    Educational opportunity is often identified as a possible silver 
lining to the dark cloud of unemployment and underemployment that looms 
over today's young graduates. The assumption is that a lack of job 
opportunities propels young workers to ``shelter'' from the downturn by 
attaining additional schooling, which may improve their long-run career 
prospects. However, there is little evidence of an uptick in enrollment 
due to the Great Recession, and since 2012 college enrollment has 
plummeted.
    Figure E shows the share of young high school graduates (age 17-20) 
enrolled in college or university. This share has greatly increased 
over time (from 44.1 percent in 1989 to 56.4 percent most recently), 
with particularly steep increases for women (44.6 percent to 59.9 
percent) compared with men (43.4 percent to 52.8 percent). Notably, 
increases in enrollment between 2007 and 2012 were no greater than what 
had been happening before the Great Recession began. The overall 
enrollment rate increased 0.7 percentage points per year on average 
between 2000 and 2007, and it also increased 0.7 percentage points per 
year between 2007 and 2012 (for women, the increase was 0.8 percentage 
points per year for both periods, while for men, the increase in the 
two periods was 0.7 percentage points per year and 0.5 percentage 
points per year, respectively). In other words, there is little 
evidence of a Great Recession-induced increase in enrollment. And since 
2012, enrollment rates for both men and women have dropped 
substantially.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure F shows the share of young college graduates (age 21-24) 
enrolled in additional schooling (for example, to get a master's 
degree). This share has also greatly increased over time (from 18.0 
percent in 1989 to 26.6 percent most recently), also with particularly 
steep increases for women (17.1 percent to 28.7 percent) compared with 
men (19.2 percent to 23.7 percent). The trends in Figure K are quite 
volatile due to small sample sizes, but they show that increases in 
enrollment of college graduates since 2007 were no greater than what 
had been happening before the Great Recession began. The overall 
enrollment rate increased 0.5 percentage points per year on average 
between 2000 and 2007, while it did not increase at all on average 
since 2007 (for women, the average increase was 0.6 percentage points 
per year from 2000 to 2007 and 0.1 percentage points per year since 
then, while for men, the average increase from 2000 to 2007 was 0.3 
percentage points per year while their enrollment declined by an 
average of 0.2 percentage points per year since 2007). Again, there is 
little evidence of a Great Recession-induced increase in enrollment.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    That enrollment has not meaningfully increased above its long-run 
trend despite the lack of job opportunities in the Great Recession and 
its aftermath is likely due largely to an often-overlooked fact: 
Students and workers are not distinct groups. Many students must work 
to pay for school or cover living expenses. In 2007, before the 
recession began, more than half (51.2 percent) of college students 
under age 25 were employed. By 2013, the share had dropped to 44.7 
percent. For students who must work to afford school, but cannot find 
work due to the poor labor market, ``sheltering in school'' is not an 
option. Furthermore, many students depend on the support of their 
parents to get through college, and if their parents saw the value of 
their home drop when the housing bubble burst, or have had bad labor 
market outcomes in the aftermath of the Great Recession, that avenue to 
college may also be unavailable (see, for example, Lovenheim and 
Reynolds 2013). In this downturn, certainly some students have had the 
financial resources to take shelter in school. However, the lack of a 
Great Recession-induced increase in enrollment suggests this group has 
been more than offset by students who have been forced to drop out of 
school, or never enter, because the effects of the bursting of the 
housing bubble and the ensuing Great Recession meant they could not 
afford to attend.
Number of Young Workers Neither Enrolled nor Employed Rises
    The lack of a Great Recession-fueled increase in college or 
university enrollment, combined with the lack of job prospects, means a 
large share of young graduates are now idled, or ``disconnected''--that 
is, neither enrolled nor employed. These young graduates are 
disconnected from two main paths--work experience or further 
education--that they could follow to begin setting themselves up for 
their future. Figure G shows the share of young high school graduates 
age 17-20 who are neither enrolled nor employed. In 2007, 13.7 percent 
of young high school graduates fell into this category, and that share 
spiked to 17.7 percent in 2010. It declined between 2010 and 2012, but 
because of the drop in enrollment since 2012, has shot back up to 17.7 
percent. In other words, the share of young high school graduates who 
are now idled has made no sustained improvement in this recovery. The 
increase since 2007 was larger for young male high school graduates 
(from 13.6 percent to 18.6 percent) than young female high school 
graduates (from 13.8 percent in 2007 to 16.9 percent).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Figure H shows the share of young college graduates age 21-24 who 
are neither enrolled nor employed. In 2007, 8.4 percent of young 
college graduates fell into this category, and that share spiked to 
11.6 percent in 2011. It has since declined only modestly, to 11.2 
percent. The pattern was quite similar for men and women, though the 
male share peaked in 2010 while the female share peaked in 2011. The 
``disconnection rates'' for both young high school graduates and young 
college graduates remain 1.3 times as high as they were before the 
recession began. The increase in the share of disconnected young people 
represents an enormous loss of opportunities for this cohort, as the 
loss of work experience or further education will have a lasting 
negative impact on their lifetime earnings. The long-term scarring 
effects of the Great Recession and its aftermath on young graduates are 
discussed in depth below.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Wages of New High School and College Graduates Have Fallen for More 
        Than a Decade
    Figure I presents average hourly wages of young high school 
graduates (age 17-20) and young college graduates (age 21-24) who are 
not enrolled in further schooling; the underlying data for key years 
are provided in Table 1. It should be noted that these data include 
salaried workers (their earnings are converted to hourly rates based on 
the number of hours they work). On average, young high school graduates 
had an hourly wage of $9.82 in the latest data. This wage rate would 
yield an annual income of roughly $20,400 for a full-time, full-year 
worker. Young college graduates had an average hourly wage of $16.99, 
which would translate into an annual income of roughly $35,300 for a 
full-time, full-year worker. On average, wages of young female 
graduates remain far less than those of young male graduates, 
regardless of educational attainment. Among young high school 
graduates, women earn 13.5 percent less than men, while among young 
college graduates, women earn 20.2 percent less than men.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The wages of all groups of young graduates have fared extremely 
poorly during the Great Recession and its aftermath, as shown in Table 
1. The real (inflation-adjusted) wages of young high school graduates 
have dropped 9.8 percent since 2007 (the declines were larger for men, 
at 11.0 percent, than for women, at 8.1 percent). The wages of young 
college graduates have also dropped since 2007, by 6.9 percent (for 
young college graduates, the declines were much larger for women, at 
10.1 percent, than for men, at 4.0 percent).


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    As Figure I shows, however, the wages of young graduates fared 
poorly even before the Great Recession began; they saw virtually no 
growth over the entire period of broad wage stagnation that began 
during the business cycle of 2000-2007. Since 2000, the wages of young 
high school graduates have declined 10.8 percent (11.4 percent for men 
and 10.7 percent for women), and the wages of young college graduates 
have decreased 7.7 percent (0.5 percent for men and 14.2 percent for 
women). These drops translate into substantial amounts of money. For 
full-time, full-year workers, the hourly wage declines since 2000 
represent a roughly $2,500 decline in annual earnings for young high 
school graduates, and a roughly $3,000 decline for young college 
graduates.
    The wage declines since 2000 stand in sharp contrast to the strong 
wage growth for these groups from 1995 to 2000. During that period of 
low unemployment and strong overall wage growth, wages rose 15.4 
percent for young high school graduates and 19.1 percent for young 
college graduates. The stark difference between these two economic 
periods illustrates how the wages of young graduates vary considerably 
depending on whether the overall economy is experiencing low 
unemployment and strong wage growth, or high unemployment and wage 
stagnation. Young graduates who enter the labor market during periods 
of strength (e.g., 1995-2000) face much stronger wage prospects than 
young graduates who enter the labor market during periods of weakness 
(e.g., 2001 to the present).
Downturn Affects Young Workers' Futures
    Young workers who have the bad luck to enter the labor market 
during a downturn not only have worse outcomes in the short run than if 
they had entered in a healthy labor market; these negative effects can 
last a very long time. Research shows that entering the labor market in 
a severe downturn can lead to reduced earnings, greater earnings 
instability, and more spells of unemployment over the next 10 to 15 
years. Unsurprisingly, given the data presented earlier on 
underemployment, the evidence suggests that part of the decline in 
earnings is due to the fact that young workers entering the labor 
market in a downturn often have to settle for jobs at less-attractive 
employers or in lower-level occupations than they otherwise would have 
(this is often referred to as ``cyclical downgrading''). This initial 
effect does tend to fade over time as workers find better jobs or move 
up within their companies, but that process can take well over a 
decade. In short, the labor market consequences of graduating in a bad 
economy are not just large and negative, but also long-lasting 
(Oreopolous, von Wachter, and Heisz 2013; Kahn 2010; Hershbein 2012). 
Because of their unlucky timing--in other words, through absolutely no 
fault of their own--the cohorts entering the labor market since 2008 
are very likely to fare poorly for at least the next decade.
The High Cost of Education, and Not Enough Money To Pay for It
    The high cost of college is one likely reason that college 
enrollment rates did not increase above their long-run trend despite 
the lack of job opportunities during the Great Recession and its 
aftermath, and have dropped since 2012. In the 2013-2014 school year, 
the total cost of attendance for an on-campus student--including in-
State tuition, books, room and board, and transportation expenses--at a 
4-year in-State public school averaged $22,826. For a 4-year private 
school, it was $44,750. The cost of higher education has risen faster 
than family incomes, making it harder for families to pay for college. 
From the 1983-1984 enrollment year to the 2012-2013 enrollment year, 
the inflation-adjusted cost of a 4-year education, including tuition, 
fees, and room and board, increased 125.5 percent for private school 
and 129.1 percent for public school. Median family income only 
increased 15.6 percent over this period, leaving families and students 
unable to pay for most colleges and universities in full (College Board 
2013; CPS ASEC).
    As tuition costs have risen at rates vastly exceeding income 
growth, it is not surprising that many students have to take on debt to 
pay for college. Using the Survey of Consumer Finances, Fry (2012) 
shows that in 2010 (the latest data available) about one in five of the 
Nation's households owed money on student debt, a proportion that has 
more than doubled since 1989. For households with student loan debt, 
the average amount was $26,682 in 2010, and the median was $13,410. The 
average amount, which has nearly tripled since 1989, is higher than the 
median because of very high amounts of debt owed by some: 10 percent of 
households owe $61,895 or more. Among households headed by adults age 
35 and younger, 40 percent held outstanding student debt in 2010 (Fry 
2012).
    Using the Federal Reserve Board of New York's Consumer Credit 
Panel, Brown et al. (2014) find that between 2004 and 2012, the number 
of student debt borrowers increased by 70 percent, and average debt per 
borrower also increased by 70 percent. The Great Recession contributed 
to this increase. Between 2007--the start of the Great Recession--and 
2012, median family income dropped by 8.4 percent (CPS ASEC Table F-5), 
and this loss of income likely caused more dependence on loans to cover 
the cost of education. Furthermore, many parents saw the value of their 
home drop when the housing bubble burst, making them less able to take 
out a home equity loan to provide tuition assistance for their college-
age children (see, for example, Lovenheim and Reynolds 2013). At the 
same time, higher education costs increased to make up for asset losses 
(at private universities) and funding cuts (at public universities) 
during the downturn. For example, between the 2007-2008 school year and 
the 2012-2013 school year, State appropriations for higher education 
per full-time enrolled student fell by 27.7 percent, and in response, 
public colleges and universities have had to steeply increase tuition 
(Oliff et al. 2013).
    Recent graduates who do not find a stable, decent-paying job may be 
forced to miss a payment or default altogether on their loans. Default 
can ruin young workers' credit scores and set them back years when it 
comes to saving for a house or a car. Researchers at the Federal 
Reserve Bank of New York find that more than 30 percent of student loan 
borrowers who are not in deferment or forbearance were at least 90 days 
past due on their educational debt in the fourth quarter of 2012. They 
also find that the recent growth in student loan balances and 
delinquencies was accompanied by a decrease in mortgage and auto loan 
borrowing for younger age groups, suggesting that student loan debt is 
indeed crowding out other investments (Brown et al. 2014).
Conclusion: Strong Overall Job Growth Is Needed To Boost Young Workers' 
        Employment
    Although the labor market is slowly improving, job opportunities 
remain extremely weak. The dramatic increase since 2007 in unemployment 
among new college graduates underscores that today's unemployment 
crisis among young workers did not arise because workers lack the right 
skills. Instead, the weak labor market is due to weak demand. Employers 
simply haven't seen demand for their goods and services pick up enough 
to require them to significantly ramp up hiring.
    It doesn't have to be this way. The most direct way to quickly 
bring down the unemployment rate of young workers is to institute 
measures that would boost aggregate demand. In the current moment this 
can best be accomplished through expansionary fiscal policy: large-
scale ongoing public investments, the reestablishment of public 
services and public-sector employment cut in the Great Recession and 
its aftermath, and strengthening safety net programs. One of the most 
effective policies available to help the economy would be to simply 
reinstate the emergency unemployment insurance benefits program that 
was allowed to expire last December.
    Policies that would spread the total hours of work across more 
workers could also bring down unemployment from the supply side. Work 
sharing would encourage employers who experience a drop in demand to 
cut back average hours per employee instead of cutting back the number 
of workers on staff. While layoffs are no more prevalent now than 
before the recession began, there are currently around 1.5 million 
layoffs every month, meaning a work-sharing program could avoid many 
layoffs and significantly reduce unemployment. Another possibility is 
to allow earlier entry into Social Security and Medicare for those 
workers wishing to move up their retirement. Early, voluntary 
retirements would decrease the labor supply while holding labor demand 
fixed, thereby allowing the unemployment rate to fall. Finally, 
mandatory paid leave policies could reduce the average annual hours 
worked. An obvious place to start would be providing paid sick days to 
the almost 40 percent of private-sector workers who lack the right to 
even a single day of paid sick leave so that they can stay home when 
they or their children are sick (Lafer 2013). The bottom line is that 
policies that will generate demand for U.S. goods and services (and 
therefore demand for workers who provide them), or policies that would 
spread the total hours of work across more workers, are the keys to 
giving young people a fighting chance as they enter the labor market 
during the aftermath of the Great Recession.
References
This entire statement borrows heavily from Shierholz, Heidi, Alyssa 
    Davis, and William Kimball. 2014. ``The Class of 2014: The Weak 
    Economy Is Idling too Many Young Graduates''. Economic Policy 
    Institute, Briefing Paper No. 377. http://www.epi.org/publication/
    class-of-2014/
Abel, Jaison, Richard Deitz, and Yaquin Su. 2014. ``Are Recent College 
    Graduates Finding Good Jobs?'' Current Issues in Economics and 
    Finance, vol. 20, no. 1. Federal Reserve Bank of New York. http://
    www.newyorkfed.org/research/current_issues/ci20-1.html
Beaudry, Paul, David A. Green, and Benjamin M. Sand. 2013. ``The Great 
    Reversal in the Demand for Skill and Cognitive Tasks''. National 
    Bureau of Economic Research, Working Paper No. 18901. http://
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                                 ______
                                 
                    PREPARED STATEMENT OF KEITH HALL
   Senior Research Fellow, Mercatus Center at George Mason University
                             June 25, 2014
Young Americans and the Current U.S. Labor Market
    Chairman Merkley, Ranking Member Heller, and Members of the 
Committee: thank you for the invitation to discuss the economic 
conditions facing young workers and recent graduates.
Introduction
    The young are always far more affected by an employment crisis than 
older workers. Today, however, they face one of the worst labor markets 
of any generation. Not only have they experienced the Great Recession, 
but 6 years later they still face a poorly performing labor market. 
Their employment level is down, earnings and earnings growth are lower, 
wealth is lower, and millions of the young have yet to even enter the 
labor force. In fact, they are a large part of the biggest ongoing 
economic challenge we face today--the shrinking labor force.
    If this continues and we have a permanently smaller labor force, we 
will have slower economic growth and a diminished standard of living in 
the future.
    Part of the solution is, of course, policies that promote stronger 
economic growth and stronger job creation. Another part of the solution 
is to focus on youth, particularly those that have not participated in 
the labor market. This means doing what we can to lower the cost of 
hiring for companies and raising the incentive to work for the young.
The Growing Problem of Youth Disengagement From Work
    The gloomy job environment has implications for the young far 
beyond the bad news contained in the high unemployment rate for their 
age cohort, which is twice that of older Americans.
    Today, just 63.4 percent of youth aged 18 to 29 are employed. Job 
prospects have been so bad that many have withdrawn from the labor 
force and do not even show up in the official unemployment rate 
statistics. This decline in participation since 2007 means that there 
are about 2 million young workers missing from the labor force. If not 
left uncounted in the official unemployment rate, these 2 million would 
raise the youth unemployment rate from its current 10.9 percent rate to 
15.4 percent--well above their highest rate in over 65 years (see 
Figure 1).
    It is well established that the longer an individual is out of the 
labor force, the less likely they are to return to employment. Or, in 
this case, ever enter the workforce. Currently 1.2 million of the 
unemployed are trying to find work for the first time in their lives. 
Worse, a shocking 400,000 of the long-term unemployed have never worked 
before (see Figure 2). If the labor market doesn't improve and many of 
the long-term jobless youth don't enter the workforce soon, they may 
never work.
    This youth disengagement from the labor force poses a real 
problem--and not just for the young but for the future performance of 
the U.S. economy. A permanently smaller future workforce would impact 
income growth and possibly even lower our future standard of living. To 
maintain economic growth, we need the two ``Ps''--participation and 
productivity. That is, we need to have an active labor force that is 
educated and skilled. Economic forecasters have for years predicted a 
slowing of U.S. economic growth as baby boomers retire. If youth labor 
force participation doesn't improve, the decline will be even more 
dramatic.
Household Impact of Unemployment and Underemployment
    The labor market difficulties of the young go beyond finding work. 
The young today face a multitude of difficulties: lower household 
wealth, lower income, and significant underemployment.
    For families where the head of the household is younger than 35 
years old, the Federal Reserve found that household wealth fell by an 
average of $45,000--that is, by about 41 percent--during the recession.
    Further, research shows that those unlucky enough to graduate 
during a recession but lucky enough to find a job will take a 9 percent 
pay hit right off the bat compared to other cohorts. Further, they will 
likely experience slower earnings growth for a decade or more. This 
will impact any young worker's ability to repay student debt, buy a 
house, and save for retirement.
    There is almost certainly a great deal of youth underemployment. 
The share of the employed that are just part-time workers remains 
elevated well above the prerecession level. In addition to lower 
starting pay, there are indications that many new graduates are 
underemployed relative to their skills and education. Job creation 
occurs not only when the economy expands and the number of jobs grows 
but also when workers leave their occupations and need to be replaced. 
In most occupations, many more job openings occur when workers leave 
their occupations to advance in their careers or to simply retire. So 
far, the level of voluntary job leavers--those moving on to advance 
their careers and those retiring--remains low. This slows the career 
advancement for the young.
Solutions
    The solution is, of course, economic growth and a stronger labor 
market. Employment and income growth for the young has lagged because 
the economic recovery has been one of the weakest in U.S. history. 
Besides just generally good economic policy, we need to focus on 
helping to reduce the cost of hiring the young and increasing the 
incentive for them to enter the workforce.
    Policies that raise the cost of hiring or reduce the incentive to 
work particularly impact the young and are counterproductive. For 
example, there is a considerable amount of economic research that finds 
that raising the minimum wage only works at the expense of jobs and 
hours worked for the least experienced workers. Wage growth is 
important, particularly for those earning near minimum wage--but 
raising the cost of hiring may result in the perverse and unintended 
effect of reducing youth employment. The Congressional Budget Office 
recently agreed that raising the cost of hiring with a huge 39 percent 
increase in the minimum wage would result in significant job loss. And, 
as I said, for some it may mean never entering the labor force.
Conclusion
    A full 6 years after the start of the Great Recession, the young 
today continue to face one of the worst labor markets of any 
generation. Not only is unemployment and underemployment a real 
problem, but our current very low rate of youth labor force 
participation may mean that millions of youth never become fully active 
in the labor market. This potentially affects everyone's future income 
growth and standard of living. Raising the rate of labor force 
participation needs to be a central focus of Federal policy makers, in 
order to strengthen our economy and raise the prospects of low-income 
Americans. To do this, we need to make it easier, not harder, for 
companies to increase hiring. We also need to encourage individuals to 
reenter the labor force, not discourage them. Government assistance for 
the jobless is important, but the reemployment of the jobless is what 
we need to reduce poverty and lower income inequality.

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              Additional Material Supplied for the Record


  LETTER SUBMITTED BY STEVE BROWN, PRESIDENT, NATIONAL ASSOCIATION OF 
                                REALTORS


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