As the 2015 graduation season fades into memory, the Class of 2015 has earned a distinction that most of them would rather live without — they are the most indebted class in history, according to an analysis of government data published in the Wall Street Journal. The average graduate carries a debt load of $35,000, which ranks as twice as much debt as the average graduate in the 1990s owed.
Backing up to take a look at the bigger picture, a study by Experian that was reported by CNN, revealed that current and former students owe a rapidly escalating $1.2 trillion in student loans. Total educational debt, which includes federal and private loans, has risen 10-fold since 1994.
While a college degree clearly results in average overall higher earning potential, the key here is average. All too many liberal arts graduates are finding that their degrees aren’t the gateway to higher paying jobs. Instead, they are stuck in a wage ghetto of entry-level and/or service jobs, where they can barely (or can’t barely) keep up with their escalating loan payments.
And increasingly, student loans aren’t just a problem for the young, who, after all, have their entire careers to pay off their loans. A study by the New York Federal Reserve Bank noted that two-thirds of student loan balances are held by borrowers not in their 20s and that the number of borrowers over 40 increased at twice the pace of the number of borrowers under 40. In fact, student loan balances held by borrowers age 60 and over, increased nine-fold from 2004 to 2014.
That being said, average balances are not horribly high. Most borrowers owe less than $25,000; 40 percent owe less than $10,000. According to the Hechinger Report, the highest debt loads are held by graduate students and those attending for-profit colleges.
The problem, or time-bomb, of escalating student debt for those of all ages, is causing all sorts of repercussions in the economy. For the young, it’s delaying household formation, so more graduates or those who have debt who weren’t able to graduate for whatever reason, are stuck living at home with Mom and Dad because of their debt load and low wages. That means they aren’t renting apartments, buying furniture, getting married, having babies, buying houses, etc., all activities that foster economic growth. For the older and old, it means working longer, delaying retirement and potentially relying more on the frayed social safety net to make ends meet.
More than half of current borrowers are either still in school or are in deferment, meaning they aren’t yet required to start paying their loans back. Of those who are in repayment, 17 percent are in default or delinquency. Default rates are rising for recent graduates who are now in repayment, with 25 percent of those who left school in 2005, 2007 and 2009 at 25 percent. The number of borrowers who default every year has increased from 500,000 10 years ago to 1.2 million annually in 2011 and 2012.
It doesn’t take a genius to figure out that based on current trends, both borrowing and defaults are likely to continue to rise. Debt loads grow the longer students take to repay, and with extended payment plans, many even younger borrowers can find that they are still paying off their own loans while they are struggling to save and or pay for their own children to go to college.
This is creating a moral crisis for some borrowers, who are having to make a choice between paying back a crushing student loan burden and achieving any type of financial security or satisfying career. These borrowers are starting to question the morality of supporting colleges who are paying gigantic salaries to administrators and athletic directors while building even more fancy facilities and the banks who act as intermediaries in the lending process. It’s the college industrial complex and eventually, something has got to give because this vicious, out of control lending cycle is not crippling individual borrowers by the millions, it’s crippling the economy and won’t get any better.
A powerful and provocative column in the New York Times, Why I Defaulted on My Student Loans, is generating a lot of conversation, as is a piece in Salon, Who Doesn’t Want to Default on Their Student Loans? The College Debt Crisis is Crippling Us, with No Real Relief in Sight.
I don’t have all the answers, but extending repayment terms is not the answer. Something has to be done to bring down the level of tuition or increase the amount of grants available, not just keep adding to the already large debt burden of students.