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Rural America's "brain drain": How student debt is emptying small towns

Think you know rural America?

Rural America is no longer where many young college graduates want to settle, with some fleeing for urban centers like New York or San Francisco. Aside from the glamour of living in those locations, there may be another culprit for the rural "brain drain" that's occurring across the U.S.: student loan debt. 

Adults with student loans are less likely to remain in rural areas than those without it, and adults with the highest student loan balances are the most likely to migrate to cities, according to new research from the Federal Reserve. That's contributing to a growing college attainment gap between urban and rural America, which has diverged from about 5 percentage points in 1970 to 14 percentage points in 2016. 

As fewer college-educated young people remain in rural locations, those regions become less attractive to other young grads. Employers, for their part, increasingly are focusing on urban locations to recruit these workers. Added to the mix is the pressure of the country's growing student loan debt, which places more pressure on grads to seek higher-paying jobs -- which are more plentiful in cities.

"Right now we are experiencing the greatest opportunity gap between rural and urban places in history," said Matt Dunne, the founder of the Hartland, Vermont-based Center on Rural Innovation, which is working on creating rural "innovation hubs" to develop entrepreneurship. "People believe the only place you can have an aspirational job is to cram into already overcrowded cities that are facing housing crises rather than make your way in rural locations."

"That creates a self-fulfilling prophecy," said Dunne, who worked for Google from a remote office in Vermont before starting the Center on Rural Innovation. 

Rural America's student debt problem

Rural America is increasingly old, shrinking in population and falling behind when it comes to its share of educated residents. About 19 percent of rural residents held college degrees in 2016, compared with 33 percent of urban residents, a gap that's widened over the past few decades, the Agriculture Department said last year. 

To be sure, the Federal Reserve said it couldn't determine whether the student loan debt is causing young college grads to move to cities. Nevertheless, the trend is notable: About half of rural residents who took out student loans remained in those areas six years later, compared with two-thirds of rural residents who didn't take out loans. And the grads with the most debt were the most likely to leave, they found. 

There's a good reason why young workers with student loans would head for the big city. Cumulative job growth since 2009 -- after the recession ended -- surged almost 14 percent in cities with at least 1 million residents, compared with 2.7 percent for rural areas and small cities, according to Goldman Sachs. 

City wages

Workers with college degrees earn far more in big cities, about $71,000 per year. But if they remain in rural areas, those college grads earn about $50,000 annually, Goldman found. 

Not surprisingly, college grads with student debt had better financial outcomes than those who stayed in rural areas, the Fed found. Those big-city migrants are more likely to pay down their loans, less likely to default, and are more likely to become homeowners, they said.  

The allure of higher pay and wider professional opportunities is enticing -- and hard for rural communities to compete with, Dunne noted. 

"The general drumbeat is you have to go to urban locations, in particular tech centers, in order to have a new economy job," he said. "That's accelerating the drive toward cities and the investment cycles in companies that are starting in cities. There's a notion you can't find talent in rural areas or smaller cities."

A divided America?

The trend is worsening the economic outcomes for rural residents while making resources -- like housing -- scarcer and more expensive in large cities, economists and policy experts say. It's also blamed for the widening political gap between rural regions and big coastal cities. 

"Any time you see a massive separation along demographic lines, it's not healthy," Dunne said. "You want to have diversity of skills, education and perspective in any part of the country."

In many cases, Americans who live in large cities would welcome an opportunity to move to a rural location, but may perceive smaller regions as lacking professional opportunities. Almost one out of four urban residents aid they would like to move to a different community, with a third of those saying they'd like to find a rural community to live in, Pew found in a 2018 study.

Loan forgiveness

Dunne, who credits his own lack of student loans with allowing him to return to Vermont to begin his career, said he made a proposal in the state's last legislative session to create a program that would forgive up to $20,000 of student debt over two years for college grads who bought houses in rural parts of the state. 

"The benefit would not only be to encourage young people to look at rural places to live and work and raise a family, but it would improve their financial profile in order to get a bank loan," he said, adding that he was inspired by corporations who offer loan forgiveness incentives when hiring, which they've found to be effective recruiting tools. 

Other communities have developed similar programs, such as Marquette, Kansas, which offers free land to people who agree to build a house in the rural town. And there are also loan forgiveness programs for health care professionals such as nurses who agree to work in rural areas. 

"Everything should be on the table in order to address this challenge," Dunne said. 

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