Recent Study Shows U.S. Student Debt Is Nearing $1 Trillion
By Luis Landas
The Federal Reserve Bank of New York released a study last month on the growing student debt burden, showing that total student debt almost tripled between 2004 and 2012 and is now approaching $1 trillion. A reported 70% increase in both the number of borrowers and the average balance per person have pushed total student debt to $966 billion as of Q4 2012. More students are borrowing more money, the report found, mainly because students are staying in college for longer and are also more often attending graduate school.
The longer-term economic consequences are the credit squeezes these students will face when they can no longer keep afloat with their loans. About 17% of borrowers are past due on their student debt more than 90 days in 2012, a large increase from under 10% in 2004. As the fed noted, “The higher burden of student loans and higher delinquencies may affect borrowers’ access to other types of credit and the performance of other debt.” Hits to credit scores and the risks of delinquency are keeping more people from buying homes. The report shows that of borrowers ages 25 to 30 who are taking out new mortgages, the percentage of those with student debt has fallen by half, from nearly 9 percent in 2005 to just above 4 percent in 2012.
In a recent editorial published March 10, The New York Times stated that a robust approach to tackling private student loans “would have to be part of any solution to the student debt crisis.” The Income-Based Repayment and Pay As You Earn programs are great for student borrowers, but they don’t benefit private borrowers. Indeed, students and families taking out private college loans do not enjoy the same flexibility with repayment as do those who take out public loans. With current laws, private student loan debt cannot be discharged on bankruptcy (except in rare situations), but other types of debt can.
With total student debt now overshadowing car loans ($730 billion), credit card loans ($693 billion) and other consumer debts, it’s no wonder households are increasingly taking the problem into their own hands, utilizing the government’s version of piggybank savings — the 529 plan. A report from the College Savings Plan Network, a nonprofit affiliate of the National Association of State Treasurers, found that average balances for 529 college savings and prepaid tuition plans reached a record $17,174 in 2012, up 12% from an average of $15,349 in 2011.
On the upside, however, the repot confirms that college graduates have lower unemployment rates, fare better during recessions, and enjoy wages roughly double those of high school graduates. As NYU Professor Richard Arum told Businessweek late last year, “The question isn’t the debt per se. It’s what the students are getting in return.” Or as President Obama would say, it’s about getting “the most bang for your educational buck.”
In President Obama’s State of the Union address, he asked Congress “to change the Higher Education Act, so that affordability and value are included in determining which colleges receive certain types of federal aid,” and also announced the College Scorecard. But the ‘change’ to the Higher Education Act asked of Congress came with no details, unfortunately, and the College Scoreboard in some ways fell flat. Unfortunately, with regard to the “skyrocketing costs” and “unsustainable debt” of a college education, these were essentially Obama’s only two new solutions.
“Colleges must do their part to keep costs down, and it’s our job to make sure that they do,” Obama said at the State of the Union address. Perhaps they haven’t heard about NYU 2031 and those sweet “employee agreements” yet.
