With 50 percent of college graduates failing to find a job, as reported, U.S. student debt has grown at a nearly 14 percent clip annually since 2005, hitting $904 billion in the first quarter of 2012, with 10.6% of loans more than 30 days past due, becoming an overall hurdle on the economy as loan were sought to help college students or those lacking a full time job time to retool.
The Wall Street Journal, citing New York Fed data, tells us that student debt outstanding increased 4.6% in the last quarter. That adds up to a 19.7% rate of increase annually during a period when other consumer borrowings were on the decline. And this growth is taking place while borrower distress is becoming acute. 11% of the loans were 90+ days delinquent, up from 8.9% at the close of last quarter.
The WSJ found a recent graduate of Embry-Riddle Aeronautical University in Daytona Beach whose education loans total nearly $230,000 for a college education that has enabled him to get a job that pays $60,000. And $184,500 of that total was borrowed by his unemployed, disabled mother through a program called Parent Plus.
If the first place, student loans are a form of economic stimulus, driving jobs and consumption, but with a growing debt crisis, questions are raised whether the money is effectively being used and how the accumulation of debt will affect borrowers in the future.
In An article in the Nov. 23 issue of The Wall Street Journal, “The Cost of Dropping Out: Millions Struggle with High College Debt and No Degree,” the writer outlines a greater deal with the critical problem of our higher education system: people who incur huge debts and never finish college. With more and more Americans attending college, individuals and taxpayers are faced with a trillion dollar debt in loans that may never be repaid, neither does it create more efficient jobs and stimulate the economy.
A 2011 study reveals that those graduating from a four-year college (after six years) end up with debts that average $20,000 — and 59 percent are delinquent. While degree holders earn substantially more than those without degrees, what about those who never finish college and consume valuable tax dollars?
A recent global study of jobs revealed that the No. 1 job in critical supply is in the skilled trades — electricians, millwrights, plumbers, computer technicians, health care, etc. With millions of workers retiring from the trades these jobs go begging, and would be well appealing to those skillful students graduating from college. The engine that drives the economy in a slow recovery we are experiencing, are the described jobs above that rapidly produce value and income.
In a market that is dominated by the federal government, which accounts for more than 90 percent of all such loans, described as a tool to stimulate the economy rather than grow the national debt, it is remarkable that lending criteria take absolutely no account of current or future repayment capacity.
Partly in response to the heavy burden of debt, the government is instituting income-based repayment (IBR), a series of programs that allows borrowers to cap monthly repayments at 15 percent of income with forgiveness of any debt remaining after 25 years, according to Reuters.
IBR means that many, up to 50 percent according to a study by the Kansas City Federal Reserve, may limit repayment and have some debt ultimately forgiven. Cooper Howes, an economist at Barclays Research, estimates that this could ultimately cost the Department of Education an additional $300 billion between now and 2020.
Arum and sociologist Josipa Roksa of the University of Virginia write that employers are being forced to turn to foreigners or graduate and professional schools to fill jobs that they once filled with homegrown college graduates.
According to Bloomberg News, The New York Fed found that in the first quarter of 2012, people 60 and older were responsible for $43 billion in student loans.
In the past few years, the rate of defaults for federal loans has increased at an alarming rate. According to the Department of Education, those recent graduates who began repayments in 2009, 8.8 percent had already defaulted on their federal loans. That compares to 7 percent in 2008. Currently, 36 million Americans have outstanding federal loans.
Nevertheless, some dismiss the above concerns, claiming student loan debt is not a big issue for most people, but it is a huge issue for a tiny group of people.
Kelly D. Edmiston, senior economist with the Federal Reserve Bank of Kansas City, took the effort crunching the numbers. The most relevant figures from his report overshadow previous concerning reports.
According to Mr. Edmiston, The median individual student loan debt for the first quarter of 2012 was $13,662. The average debt that people owed was $24,218. Twenty-five percent of borrowers owed less than $5,977 and 25 percent of borrowers owed more than $29,155. The perspective missing from all the highly publicized stories of people with massive amounts of student loan debt is that less than 3 percent had debt more than $100,000. Only half a percent had debt over $200,000.
“You hear about these people with $100,000 worth of debt, and they are delivering pizza and can’t declare bankruptcy on their loans,” Edmiston said. “But if someone is working their job, a decent job, and is repaying their student loan debt, well, that’s not a story.”