With Donald Trump and most of the Wall Street big wigs rejoicing about a healthy stock market and “low unemployment” rates, it’s understandable that none of them could feel the collective side-eye this country’s college students are giving them.
Yes, the economy may have improved, but none of this has “trickled down” to the millions of college graduates who are still buried under a mountain of debt, not to mention the other millions of college students who are now being faced with the decision of either stopping school or graduating with a degree and a 6-figure loan.
It’s Getting Worse
Since the Great Recession of 2008, consumer debt has risen and fall. However, out of all the segments of consumer debt, federal student loans are the only ones that are enjoying a continuous, cumulative growth. Despite massive unemployment rise, an unsteady economy, and various other factors, the cost of tuition is still on the rise, which means that student loans as an industry is as healthy as ever, much to the detriment of students and working adults everywhere in the country. It’s gotten so bad that even Jerome Powell, Chair of the Federal Reserve, called it a “cause for concern”.
To give you an idea of how bad it’s gotten, let’s do a comparison: in terms of cumulative growth over the past decade or so, auto loan debt has grown by 52%, while mortgage and credit-card debt, while still the highest contributor to consumer debt, actually fell by 1%.
On the other hand, student loans have grown a whopping 157% over the past 11 years. This translates to about $1.5 trillion in student loan debts, which makes it the second-largest contributor to consumer debt. By the end of the decade, experts agree that this number is just going to keep growing.
And the worst part? There’s nothing you can do about it right now.
A Flawed System
By 2020, many experts agree that 65% of jobs in the country will require a postsecondary education diploma or higher. With increasingly more advanced educational requirements and rising cost of tuition fees in both private and public schools, as well as rising student loan interest rates, students and working adults are not having a good time.
Student loan debt also has the highest rate of 90+ day delinquency. For comparison, other household debts have much lower rates of delinquency: mortgage debt delinquency is at 1.1%, while auto loans have 4%. Meanwhile, student loan debt delinquency is up at 10%. Unlike the former two types of debt, student loan debt delinquency has risen steadily in the past 10 years, remaining roughly the same since their highest point in 2012.
A large contributor to the increase in delinquency is for-profit colleges that sold themselves as an easy way to get a diploma for low-paying jobs. Unfortunately, many of the diplomas offered by these schools were of no real value, leaving thousands of graduates with massive amounts of debt that they can’t pay back because they couldn’t find employment.
Students stuck with useless diplomas from for-profit community colleges and schools made up around 50% of the total number of students graduating and repaying loans in 2011, and they made up a whopping 70% of people defaulting on their student loans. Because of this, the 2011-2012 academic year became the high-point of debt delinquency, reaching as high as 11.7%.
Almost 10 years later, this rate has yet to go down significantly, leading many analysts to conclude that the student debt loan issue reaching crisis levels for borrowers. Ironically, the borrowers who are most likely to be delinquent with their debt are those who borrowed smaller amounts for non-technical courses. Graduates who rack up 6-figure loans for courses like medicine or law tend to enjoy good ROI and are more likely to pay back their student loan, albeit slowly over the course of years, even decades for some.
Contributing to a Larger Problem
Many analysts argue that it’s a self-perpetuating system: students borrow money so that they can obtain a degree from a for-profit school, which they can then use to get a job, which they can then use to pay back their debt. Unfortunately, many graduates are unable to find jobs using their for-profit school’s diploma, which means they’re unable to pay back the debt.
College dropouts and for-profit graduates are often on the same boat when looking for jobs: they either will have a very hard time finding one, or will find employment but with wages so low they’ll barely be able to cover living expenses, let alone pay off their debt. In these scenarios, minority graduates are most often the victim, with many of them facing severe discrimination in the job market.
But it’s not just about whether or not people can find a job; because of the continued and unchecked number of loans being applied for, a job market that is slowly failing to accommodate this many people, and more graduates defaulting on their loans, some experts believe that, if left unchecked, this could lead to a new financial crisis. The continued rise in debt delinquencies can have major repercussions in the larger economic picture.
Economic experts break it down like this: graduates who default on their student debt receive negative points on their credit rating, which means they’ll have a harder time finding mortgages for homes or auto loans, which means that no new money will circulate in the economy. The student debt crisis, therefore, may become (if not already) a huge hindrance to the country’s economic growth.
And we’re already seeing this happen: after the Great Recession of ’08, homeownership decreased significantly, largely in part to graduates being unable to afford homes and thus being stuck living with their parents. In fact, a study by Bloomberg Intelligence showed that 16% of workers aged 25-35 chose to not form a household of their own and choosing to live with their parents instead.
As young adults struggle to pay back their loans, they’re forced to make financial concessions that create a drag on the economy. Student debt has delayed household formation and led to a decline in homeownership. Sixteen percent of young workers aged 25 to 35 lived with their parents in 2017, up 4 percent from 10 years prior, shows Bloomberg Intelligence. This has a significant impact on the economy because graduates will skimp on spending on major economic drivers simply because they’re trying to repay their student loans.
It is perhaps high time for government to step in and start imposing stricter regulations on student loans, or perhaps educational policies like subsidized schooling in order to help students. After all, they are our future.
