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The Good, The Bad and The Ugly about U.S. Student Loans

The good the bad and the ugly about US student loans

The reoccurring news about higher education trends paints an ugly picture; enormous student loan debt outpaces U.S. economic growth. Exactly how fast and how much is student loan debt growing?

The Federal Reserve System uses a few methods to collect data on student loans, and the Survey of Consumer Finances (SCF,) conducted every three years, provides the most conservative results. As of September 2013, outstanding student loans were over $7 billion. The SCF collects data on the assets and debts, including student loans, from a representative sample of U.S. households.

Data received from entities that hold or guarantee student loans, though, such as banks, finance companies, and the federal government (G.19 report), and the Consumer Credit Panel (CCP) in March 2015, paints an uglier picture: $1.19-$1.27 trillion in total U.S. student loan debt. The data, however, differs in their coverage of student loans in default.

What the numbers boil down to per U.S. student, though, according to the Federal Reserve Board 2014 Survey of Household Economics and Decisionmaking, means the average student carries $30,182 in student loan debt, and the median $16,000. The average monthly payment is $681 and the median $200, according to the survey.

Currently, about 71 percent of bachelor’s degree recipients will graduate with a student loan, compared with less than half that two decades ago and about 64 percent ten years ago, when the average student loan was $20,000 per student. The outstanding balance of the country’s total student loan debt grows at an estimated $2,726.27 every second, according to a meter developed for MarketWatch by StartClass, an education data site.

Is the picture even worse for some student loan debt carriers? Yes. Is there any redemptive hope about holding student loan debt? Yes.

The Good: Economic prosperity comes from educated minds

According to the Bureau of Labor Statistics, there is less unemployment among the college educated, and their earnings are significantly greater than those who are not college educated:

  • The unemployment rate among those with only a high school diploma is 6 percent versus 3.5 percent for those with bachelor’s degrees, according to 2014 data. For those with graduate degrees—masters and doctoral degrees, unemployment is 2.8 % and 2.1 %. Those with professional degrees have less than a 2 percent unemployment rate.
  • Employees with bachelor degrees and graduate degrees, including professional degrees, earn more income. The median weekly earnings between $1,101 and $1,639 versus $668 per week for those who only hold a high school diploma.
  • According to 2011 U.S. Census Synthetic Work-Life Earnings (SWE) data, (an estimate of the amount of money a person might expect to make over the course of a career based on factors such as education and occupation added up over a work life,) holding a bachelor’s degree versus a high school diploma can mean an earnings difference of more than a million dollars over the course of a lifetime:
  • The expected earnings over a 40-year period for the population aged 25–64 who maintain full-time, year-round employment the entire time with a high school diploma is $1,371,000 versus $ 2,422,000 for those with a bachelor’s degree.

On Dec. 17, 2015, The S. Department of Education announced Pay As You Earn student loans repayment plans (PAYE) to ease student loan debt burden for working Americans. Under PAYE plans, if you’re a borrower who needs help with your debt, you can reduce your monthly payment and never have to pay more than 10 percent of your income towards student loan payments.

Student loan forgiveness – The U.S. Department of Education provides other methods for which federal student loans can be forgiven, canceled, or discharged, depending on individual circumstances such as disability.

Annual increases in the cost of college are slowing—if ever so slowly.

College costs still increased more than general inflation in 2014, (the all items index in the 2014 U.S. Consumer Price Index increased 0.8 percent before seasonal adjustment.) However, the College Board, a non-profit advocacy group for students, reported that the increases in in-state tuition and fees at four-year public institutions of 2.9 percent for the 2014-2015 academic year and 2.8 percent for the 2013-2014 academic are the only increases since 1974-1975 that have been less than 3 percent (not adjusted for inflation.)

Student loan debt payoff could become an employee benefit in some companies.

In September, Pricewaterhouse Coopers launched an employee benefit that will pay $1200 a year for its associates and senior associates, those employees that have 1-6 years’ work experience, to help reduce their student loan burden. Over time, this benefit may help reduce student loan principal and interest obligations by as much as $10,000 per employee, and shorten loan payoff periods by up to three years. The benefit will be available to approximately 22,000 of PwC’s U.S. employees within the firm, more than 45 percent of its U.S. employee population.

Student loan debt is forever, until paid in full.

Borrowers and loans live together until the borrower pays it off or dies. However, unlike other creditors pursuing a borrower’s estate posthumously, upon death, the government discharges the borrower’s student loan debt.

The Bad: Debt Begets Debt

Americans owe more in student loan debt than credit card debt.

Credit card comparison website Card Hub projects U.S. credit card debt to total $900 billion by the end of this year (versus more than a trillion in total U.S. student loan debt.)

The Federal Reserve Board 2014 Survey of Household Economics and Decisionmaking results show that of the 15 percent of individuals who currently owe money on loans for their own education, 6 percent of that group also owes money for a spouse’s education; and another 6 percent hold a debt acquired for a child or grandchild.

Survey results also showed that 14 percent of respondents said they have credit card debt from paying for education; 5 percent used a home equity loan for the costs and 11 percent said they have “some other non-student loan debt” to cover their education.

Debt responsible of delaying major life events

According to DoSomething.org, of the 37 million borrowers who have outstanding student loan balances, 14 percent or 5.4 million borrowers, have at least one student loan account they are not paying on time.

The student loan debt burden for young graduates means delaying major life events and milestones, according to a Bankrate.com survey released in August 2015. Those surveyed between ages 18 and 29, held off on buying a home (30 percent) and car (29 percent) more than any other life event.

The Ugly: Student Loan Debt can bury you alive

Many have student loan debt that falls far outside the average $30,000, according to New York Times’ Kevin Carey. “Liz Kelley, a Missouri high school teacher and mother of four made a series of unremarkable decisions about college and borrowing. She now owes the federal government $410,000, and counting,” Carey wrote in a November 2015 article. “The accumulated interest was more than twice the original principal.”

According to Carey, of the 43.3 million borrowers with outstanding federal student loans, 1.8 percent, or 779,000 people, owe $150,000 or more. In addition, 346,000 owe more than $200,000.

About 65 percent of high-debt student loan borrowers were surprised or misunderstood aspects of their loans or the borrowing process, says org.

The U.S. Department of Education says there are common mistakes people make that send them to student loan purgatory:

  • Not figuring out how much you’ll need to pay each month
  • Choosing the wrong repayment plan: repayment plan is a major factor in determining how much a monthly student loan payment will be and how long it will take to pay back the loan.
  • Not paying extra when possible as Federal student loans that accrue interest accrue it each day.
  • Missing payments: not paying or not paying student loans on time can negatively affect credit scores.
  • Paying for student loan help 

–Linda T. Kennedy is a freelance journalist based in Salt Lake City, Utah