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Debt denies access to middle class

If you pay attention to the real estate market, you know that the cost of buying a house is currently astronomical. In addition to significant increases in the cost of housing, most prospective buyers also need to contend with mortgage debt. Right now, the average mortgage interest rate is about 6.65%. Many people believe that mortgage interest rates are poised to return to 8% or better in the spring.

The market price for the “average” home in Michigan currently is nearly $250,000. As of October 2023, the average monthly payment on new mortgages was nearly $2,900. With that monthly payment, buyers who want to follow the “30%” income rule of spending no more than 30% of their income on housing would need to have an annual income of at least $115,000.

Outside of a massive burndown of the housing market like we saw in 2007, the price of housing does not seem set to drop anytime soon. The demand for housing far outweighs the current supply and most prime-age homebuyers can’t afford the stock that’s available. At the same time, the rental market has also exploded. Currently in the United States, there are only four major cities in which buying a home makes more financial sense than renting: Detroit, Philadelphia, Cleveland, and Houston. As the demand for rental housing increases and the supply shrinks, the cost of renting has also become financially oppressive.

What hasn’t increased nearly as fast as the cost of housing is worker incomes. There is a practical limit to how much debt a person can afford to carry. Few people can afford to manage student loan debt, auto loan debt, credit card debt, and mortgage loan debt at the same time.

For Zoomers, a college education equals unmanageable debt

Despite reports to the contrary, college age Zoomers don’t doubt the value of a college education. They doubt their ability to afford a college education that will produce a significant increase in their income levels. Generationally, they are debt-averse, so when they’re asked to compare the value of a college education against the possibility of paying off student loan debt for years or even decades, under those circumstances, they will forgo a college degree. Being mired in student loan debt means they can’t afford to buy a home, or a car or pay off their credit card debt. They can’t afford to have children because they can’t afford daycare.

If they have any hope of managing the trappings of middle-class life, they will need far more income than what an associate degree will provide. In fact, it’s not clear whether a two-year degree can even make a meaningful contribution as a second income under these circumstances.

If community colleges are going to survive, those who administer them must realign their definition of “living wage” with the financial realities of Generation Z. Then they must redesign the majority of their academic programs to generate much larger income targets.

If that’s too much work, then it’s not clear what value community colleges can deliver to the communities that fund them.

Photo Credit: Zak Greant , via Flickr