What’s
Wrong Today:
According
to the Federal Reserve Bank
of NY (FRBNY), student loan balances increased by $53 billion in the 4th
quarter of 2013, and totaled $114 billion for the year, ending at $1.08
trillion. Student loans now make up 9.4% of total consumer debt and 36.7% of
non-housing debt.
As the Wrongologist said last April, student loans are growth
market.
In 2003,
student loans accounted for 3.1% of total consumer debt and 12.2% of
non-housing debt. So, student loans have more than tripled in 10
years. It looks like student loans could bankrupt a
generation, not to mention really affect their credit scores. Most students in debt will need to use the best credit cards to build credit before even thinking about taking out another loan like a mortgage.
It’s
obvious that growing student debt is hurting not just those who attended
college or who have graduated. It also impacts any relatives who may have co-signed
for a student loan. Many look to UniTaskr and similar job desks to get jobs during their degrees to help repay the debts, and those graduates who do have jobs must also give top priority to
servicing their college debts, which means they must defer certain life
experiences, like buying a home, or getting married, or starting a family. Services like BenefitEd are avaliable to help you, but more needs to be done to prevent this problem!
Consider
this: Researchers at the FRBNY did their
own analysis of the student debt problem’s impact. From 2009 to 2012, the home ownership rate fell twice as much for
30-year-olds who had a history of student loans than it did for those
without such debt. The finding upends traditional thinking, which
held that student debt signaled higher earnings and higher chances of owning a
home.
Why is
this happening? Tuition has skyrocketed since 1980. Students are getting a
similar education as before, but at a much higher price. And afterwards,
they’re left with a mountain of debt. It is possible to consolidate your debts into one more manageable loan, like what is offered by debtconsolidation.loans.
Consider
the relative growth in inflation of college costs:
It
is a value judgment if today’s students are getting better (or more) education for
their money. It is not a value judgment that the jobs market is offering less
to someone with a college degree. As the chart below shows, median income for
those with a bachelor’s degree has fallen since 2003. Graphing median income
vs. student debt shows a very depressing gap has appeared since 2003:
Student debt is the symptom, not the problem. The real problems
are soaring costs of a college education and the sharply declining real-world
value of a diploma.
It
is true that at public colleges and universities, tuition has risen due in part
due to the states shifting funding away from their university systems. Other reasons
include the fact that it takes longer
to complete a degree today than in the past, so the borrowing goes on
for longer:
- Only
37% of freshman at 4-year colleges graduate in four years
- 59%
of full-time students at 4-year institutions graduate within 6 years
Also,
non-teaching positions have grown faster than teaching positions. According to
an analysis released this month by the New England Center for Investigative Reporting,
(NECIR) from 1987 until 2011-12, the most recent academic year for which comparable
figures are available, universities and colleges collectively added 517,636
administrators and professional employees. The ratio of nonacademic employees
to faculty has also doubled. There are now two nonacademic employees at public
and two-and-a-half at private universities and colleges for every one
full-time, tenure-track member of the faculty.
NECIR also reported that
the number of employees in central system offices has increased six-fold since
1987, and the number of administrators in them by a factor of more than 34.
With all
this borrowing by students, student loan delinquencies have increased rapidly.
They were around 6% in 2005, but they were 11.5% at the end of 2013.
American debtors
have always leaned heavily on credit cards. Therefore, credit card
delinquencies have always been highest category of past due debt, usually
ranging between 8.5% and 10.2%. They spiked to 13.7% during the Great Recession
before dropping again. In Q3, 2012, student
loan delinquencies exceeded credit card delinquencies for the first time.
Since then, the gap has widened, with credit card delinquencies at 9.5% and
student loan delinquencies at 11.5%.
As bad as
that sounds, real student delinquencies are worse than that. Many student borrowers
don’t have to make any payments while they are in school. So if the delinquency
rate were calculated based on those borrowers who have made payments as a
percentage of those who should be
making payments, the delinquency rate would be considerably higher.
It may not
be an exaggeration to call our student loan situation another subprime debacle waiting to happen. Here’s why: In
the below 30 age group, 38% of the borrowers had credit scores of under 621,
and 29% had scores between 621 and 680. And it is at that lower end of the
credit spectrum where student loans grew the most during the
year:
(HELOC
means Home Equity Line of Credit)
These
borrowers, who are at the low end of the creditworthiness spectrum, are least likely to pay off the debt they
took on in order to attend schools that have often leave them unprepared
for today’s job market, assuming they can even find a job in today’s tough job
market.
And these lucky duckies can’t even use
bankruptcy to create a clean slate! We should remember
that by law, student loan debt is treated differently than other kinds of
consumer debt. Among the differences:
- Student loan debt is not dissolved
in bankruptcy
- Student loan lenders can garnish
Social Security benefits without a court order
These “enhancements”
were passed in successive versions of the Higher Education Act over the past 15
years. The fact that the banking
industry lobbied for the ability to garnish SS benefits tells you they expected
high losses on student debt. That’s one more win for the Plutocracy.
What’s
the plan, Congress?
In
the 20th century, no other institution could say that it had a greater ability
to raise people out of poverty or, to have contributed more to the development
of a robust American middle class than higher education.
For nearly 30 years,
medical care and higher education costs have risen at rates substantially above the official rate of inflation. Since the Clinton administration,
Americans have agreed that health care is a national policy concern that
warrants serious public consideration.
Yet,
we fail to give higher education the same degree of attention, notwithstanding
the rising costs to students and families.
These kids
who have to borrow to get their bachelor’s degree will start out their working
lives broke, and they will stay broke as long as there is student loan debt to
repay. It will handicap their contribution to the economy for years to come. It
will delay their starting a 401k, or other lifetime savings program.
We used to talk about being wage slaves. While that is still true, this generation of students is on
track to becoming America’s first debt-slave generation.
