[UPDATED] USA Today says that at some point this year, student loan debt will exceed $1 trillion, surpassing even credit card debt. Felix Salmon says the number is closer to $550 billion. Either way total student loan debt is rising as other debts have tailed off. Delinquency has increased, too, since the height of the financial crisis.
It’s a huge mess.
Some people have noticed that “student loan debt” comes up a lot among the Wall Street Occupiers and the members of the 99 percent movement. Often, older people, who either attended school when tuition was reasonable, or who didn’t attend college at all in an era when a high school diploma was enough of a qualification for a stable, middle-class career, tend to think this is all the entitled whining of spoiled kids. They don’t understand that these kids accepted a home mortgage worth of debt before they ever even had a regular income, based on phony promises, and that the debt is inescapable, regardless of life circumstances or ability to pay….
In other words, this is unprecedentedly awful for an entire generation of young people just entering adulthood.
“It’s going to create a generation of wage slavery,” says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.
Even if by some miracle our unemployed and underemployed debt-laden graduates all win decent jobs tomorrow, the money they make will go into paying off these now-delinquent loans instead of anything productive for the economy as a whole. Banks will continue to see massive profits, in other words.
It doesn’t help that student loans are the only form of debt that isn’t dischargeable in a bankruptcy.
My wife works with a man whose wife just graduated from Nurse Anesthetist school. In Kentucky she is now pulling down around $150K (which is a fortune for the area). Their strategy, which appears to have worked, was to rack up lots of student loan debt, pay it off with lots of different credit cards, then file for bankruptcy on the credit cards. Sure, they won’t have access to credit for the next 7 years, but who cares? She’s making $150K and they are debt-free.
Comment by Robin — October 24, 2011 @ 1:13 pm
Wow.
This is likely going to get worse. There has been an assumption that education is always “worth it” in terms of earnings, but that’s not always the case. What’s more, if the banks weren’t able to have these loans exempt from bankruptcy, they would be the first to tell people that and act accordingly. But since they have no fear of bankruptcy discharge, they lend away to 18 year olds. And the schools also have little incentive to urge too much caution. And too many parents push college, right away, no matter what. It’s bad all the way around.
Much, much more caution needs to be given to students and their famililes who are considering these loans.
Comment by T — October 24, 2011 @ 1:21 pm
As a young person who has struggled with student loans, I think it depends a lot on the person and whether or not the school you attended is worth the money. Yeah, I left school with $70k in loans and it has created some stress for us, but those loans are probably pretty close to paying for themselves. Without going to a good university I probably never would have been working in the industry I am in with good career prospects.
But if you’re not willing to work hard or if you spent a boatload to go to an average school then those loans will kill you.
I know there are counterexamples to my story. Certainly I was also fortunate to graduate a couple of years before the recession, but loans in a lot of cases are a good thing and open opportunities that would have been closed otherwise.
Comment by Marcus — October 24, 2011 @ 1:29 pm
Yep Scot…I’ve got really mixed feelings about all this. As a professor at a private, Christian University that is very expensive, I understand the mess that students are in. I counsel students regularly as they struggle with the $80K or even more of debt that they are facing when they graduate with undergrad degrees. It is truly a sad state of affairs. Although I have no answers, I do now tell students that they need to seriously consider the financial implications of their educational journey. When debt is easy to incur, many students just jump at the chance to go to any college they desire…unfortunately, they don’t have the life wisdom to understand the full weight of their choices. Huge problem as these students emerge into the adult world…like you pointed out, they receive a degree and a “mortgage” before they even get their first job.
Comment by Robin Dugall — October 24, 2011 @ 1:32 pm
And all of this debt for degrees that often result neither in a solid education nor in gainful employment. How much better it would be for many university students to pursue an apprenticeship relationship? But is it even possible in this gate-keeping system?
Comment by Daren Redekopp — October 24, 2011 @ 1:56 pm
Somebody will end up paying, one way or another. Who should that be?
Comment by Jeff Doles — October 24, 2011 @ 1:57 pm
The real problem with student loans that is rarely talked about it that a ton of people with student loans don’t have any degrees. Phoenix and some of the other for profit degree programs have drop out rates of around 50%.
Comment by Adam Shields — October 24, 2011 @ 2:07 pm
this is all the more reason this article about college dropouts saving America is relevant: http://www.nytimes.com/2011/10/23/opinion/sunday/will-dropouts-save-america.html?_r=1&pagewanted=all%3Fsrc%3Dtp&smid=fb-share
it really is too bad there isn’t a push for financial education classes in high school. my wife teaches high school business classes and is often shocked at the lack of even a basic understanding about budgets, money, marketing, etc.
Comment by chad m — October 24, 2011 @ 2:25 pm
I have $20,000 in student loan debt, mostly from my Seminary education. And it makes my financial situation quite tight. That and my credit card debt I incurred during Seminary and a yearlong internship. I couldn’t even imagine $70,000+ in debt. Couldn’t even imagine. And I didn’t even buy into the idea that I needed a top school. We are in a terrible mess here!
Comment by angie — October 24, 2011 @ 2:30 pm
And it’s only going to get worse because the schools keep raising their tuition and fees and students just keep borrowing more money to pay for it.
Comment by ChrisB — October 24, 2011 @ 2:46 pm
I will break my points up.
The question is not whether education is worth it, but which education is worth it for the specific individual. My son has a friend that is taking his Dad’s money to study HVAC (I had to laugh when my son said it was Heating, Vacuuming, and Air Conditioning
), that is much better for him than taking history, or art or business..
The trade schools are a vital part of our economy. In countries like Germany the tradesman is still a noble profession and the good ones make a nice living. We need to bring back to the US the worth of the trades and get these kids out of meaningless degrees.
Comment by DRT — October 24, 2011 @ 3:00 pm
What happened to the person who would get a job and then get the company to pay for the education? I got my BS on my own (well, M&D paid for it), and my employer at the time paid for my MBA. Dad did not get his BS until much later, after a company paid for it. It delays the education process which makes for a more mature student, it spreads the burden, I recommend it.
Comment by DRT — October 24, 2011 @ 3:03 pm
Kids need to judiciously consider the trade-off of degree and school. While I may have to be a business major at one school, I could get a technical education at another and it will cost me less. Also, I may get a high GPA at a cheap school, or a low GPA at a better school, those are not simple decisions. I don’t believe the right answer is to go to the better school in many cases.
Comment by DRT — October 24, 2011 @ 3:05 pm
“Can the Youth Vote Be Bought For a Trillion Dollars?”
“In the realm of economic stimulus proposals, none is as audacious, as Machiavellian, and as transparently designed to buy the votes of a critical electoral demographic than the proposal to forgive all student loans.”
http://www.realclearmarkets.com/articles/2011/10/24/can_the_youth_vote_be_bought_for_a_trillion_dollars_99323.html
Comment by DLS — October 24, 2011 @ 3:07 pm
Parents need to get more creative in their ideas of careers for their kids. My parent has a good friend that bought a gas station and garage with one of their boys instead of going to college. I have a small company that I would love to have one of my kids take instead of college if that suited them. There are many other avenues to success.
Comment by DRT — October 24, 2011 @ 3:08 pm
What troubles me more than anything are the Christian ministries students who wrack up student loan debt so they can earn $20,000 a year as a pastor and put in 60+ hours of ministry work. This is not accounting for the parents who pull parent-plus loans to assist their kids in the process.
I’m not griping- we will pay what we owe and gladly. Bible school was the best thing for me and the definitely for our kids and worth the price. But something’s gotta break, give or whatever at some point and I don’t have an answer to offer.
Comment by Rob Henderson — October 24, 2011 @ 3:08 pm
Next, we need an Occupy the University movement! j/k Scot …
Comment by DRT — October 24, 2011 @ 3:10 pm
BTW, I don’t have a solution for the kids who are going to be slaves to their debt. It is a shame.
Comment by DRT — October 24, 2011 @ 3:12 pm
I know this post addresses the results, but I really think that understanding the underlying problem is important. The federal gov’t guarantees student loans which means that:
1) More people go to school (upward market pressure on price)
2) Banks loan to non-creditworthy people (creates moral hazard)
3) The Federal Reserve prints the money to reimburse banks for loan defaulters (upward inflation pressure on price)
And related to this are gov’t grants which are paid for with printed money adding to price inflation in the higher education market.
This all leads to higher prices in a vicious cycle. College was affordable when gov’t did not do this or did much less of it. The more the gov’t gives grants and subsidizes loans the worse this is going to get. Prices are skyrocketing like the housing market for the same reasons (gov’t money or guarantees distorting the market).
The solution is to remove the upward pressure on price in that market (and overall) by reducing the printing of money and the removal of the gov’t.
I know this doesn’t help those already caught in the system, but at least we can stop adding to the problem for new folks.
Another part of the problem is people going to school for degrees in areas where jobs and/or salaries are just not there. That is on the student and the horrible illusion that they are under that going to school is always the right the to do. Getting a loan for a degree in almost anything outside of Medicine/Law/IT/Accounting is financial suicide. You can go for History or Art or English or whatever, but don’t get a loan for those degrees.
Comment by JBL — October 24, 2011 @ 3:17 pm
With a child in college and twins going to school next year, this is an issue that weighs heavily on our middle-class family. Costs are completely out of line with income, especially if you are not one of those lucky ducky parents of the children with the perfect SATS and 4.3 gpas who did 12 internships and saved 500 dying puppies while learning seven different languages and car mechanics in their spare time. The system is hard on the average student. One problem I see is that some people have grandparents and other relatives who will help will the school tuitions–and the schools know it, even though those funds don’t show up on the FAFSA. Those of us without families who can help are at a true disadvantage. Second, schools keep raising tuition despite falling real income. This has to be addressed. Third, college, realistically speaking, is the ONLY option–yes, apprenticeships and trade school are a wonderful idea, but what kind of financial future, realistically, do they offer? To be taken seriously as, say, a custom woodworker, you need a college degree first. It shouldn’t be that way, but it is. Another problem, and I have mentioned this before, is that colleges are basically all the same–there is nowhere to send the child who really needs structure and rules to succeed. As my husband said, we could use an Unarmed Services where we can put kids when they need some help growing up. I like, in theory, the idea of businesses paying to educate the workforce, but would it mean the end of liberal arts, except for the wealthy? And right now, it’s not an expected benefit, the way, say, health care is or a 401K–until that happens, most parents are loathe to rely on such an uncertain system.
Comment by Diane — October 24, 2011 @ 3:25 pm
Student loan debt makes for an interesting comparison to sub-prime mortgages. In both cases, people who likely would not qualify for normal loans were given easy access to credit for policy reasons: improving access to home ownership and education. The notable differences are that student loans aren’t associated with any seizable assets and can’t be discharged through bankruptcy.
@DRT: good suggestions about wider education options than just automatically going to uni straight out of high school.
Comment by Daniel S — October 24, 2011 @ 3:32 pm
I would recommend the student attend a 2 year community college which is more affordable; then proceed to a 4 year university. There will be a big savings. Sure, it may not be the ideal, but in this economic climate it makes a lot of sense.
Comment by Gloria — October 24, 2011 @ 3:36 pm
And not to go on, but … colleges also, imo, need to get more realistic about stating what they are willing to offer in financial aid. Our daughter is attending a small liberal arts college that has been good for her, and that promises in several places on its website that nobody should be afraid to apply because the school will provide the financial aid needed to get every student through. Well–no, not really. Large students loans are built in from the start as part of the “financial aid.” I don’t consider loans “aid.” So your child is saddled with these loans from the beginning–unless you are rich enough, of course, to simply write those 40-50K checks every year. Then comes the issue of what the FASFA says the parent contribution should be and what the school wants. It can really be a large gap, especially if your child isn’t a star student. I believe in paying for education, but I think colleges need to develop more compassion and be more honest about meeting needs–and to understand that offering more and more and more loans is not the definition of “meeting needs.” If I weren’t a Christian, I think I would have a nervous breakdown over all this. As it is, I am often in tears wondering how we are going to pay all these bills, especially with two more children entering the system.
Comment by Diane — October 24, 2011 @ 3:38 pm
The research still says that the degree is worth it though. Even though some do well with alternative education models. On average, even with the high cost of college, you still are better off with the college degree (and the costs) than you are without one.
One significant issue that is not discussed with the current model of higher education is that it is actually increasing economic disparity. When the GI Bill and other means of education (pell grants, etc.) supported many low income students (and actually paid for the majority of the costs), many new students were the first in their family to go to college. But now, for the first time ever, students are less likely than their parents to go to college. And in our information biased economy, education in still necessary for high paying jobs.
Comment by Adam Shields — October 24, 2011 @ 3:40 pm
Adam,
I agree with you. I don’t mean to complain about the cost of college because I recognize we are privileged, even with the strain, to be able to do it at all–and it is a benefit–but I do worry about that break point coming. What happens to colleges when people simply can’t pay? Does it become entirely a system based on wealth, except for those fortunate few poor and middle-class kids who get slots in Ivy League schools? Do many colleges simply disappear?
Comment by Diane — October 24, 2011 @ 3:51 pm
JBL#19, I have to point out that an Engineering degree is a good investment too.
Comment by DRT — October 24, 2011 @ 4:07 pm
This brings up a point that several have eluded to. There is a big difference between getting a degree that will pay for itself and getting one which will not.
The rule I have espoused over the years is that it is OK to use debt to finance appreciable assets, and not OK to finance depreciable assets. So a house is OK, but nearly every car is not. Seriously. Don’t get loans on cars.
An education then requires one to analyze the situation.
A history degree for someone destined for a trade is not a good idea to go into debt. But it would be fine for someone to pay for with cash if they feel it could have less substantive impacts over time, or is something they would enjoy.
Comment by DRT — October 24, 2011 @ 4:15 pm
Diane,
I was not meaning to call you out. I recognize and think it is a big problem, especially for those of us that are in human serivices or ministry.
Personally, I have an undergrad from a highly selective undergrad Christian school and then two master’s from a lower level near ivy league school and now 15 years later (after the loans are all paid off). I voluntarily decided to work as a nanny for the past 4 years full time for my two nieces (while doing a little part time ministry work).
If you owe the man, it is hard to serve God. It is just part of reality.
Comment by Adam Shields — October 24, 2011 @ 4:19 pm
Student debt is a problem – but a statistic like the one given here needs to be considered carefully. It isn’t very useful without more information. (The correct number it appears is greater than 550 billion but less than 1 trillion.)
How much of this is for traditional undergraduate students at public or private non-profit institutions – and how does it break down on a per person basis?
The number above I assume contains info for professional and graduate degrees as well as for degrees from for-profit institutions. The loan load for professional degrees is much larger than for traditional undergraduate degrees. (This includes seminary)
But most of the comments here are bemoaning the costs (and value) of standard 4-year undergraduate education. Are these numbers really so bad? What do the numbers look like for undergraduate degrees? The following data is from the Chronicle of Higher Education – Almanac issue (Aug 26, 2011)
37.5% of students were at public 4-year institutions and 73% graduated with <$20,000 in debt. (38% had no debt)
16.5% were at private 4-year institutions and 57% graduated with <$20,000 in debt. (28% had no debt)
For profit colleges account for 6.6% of students but the only 20% graduate with <$20,000 in debt. (only 4% had no debt). For profit colleges account for 6.6% of students but 25-28% of federal Stafford Loan funds – this is a real problem. For profit colleges generally target the underprepared and unfunded with hopes for the future… and use a disproportionate amount of federal loan (and grant) money to fund it.
The remaining 39.4% took Gloria's route (#22) and were at 2 year colleges (perhaps transferring after) and 83-90% finish these 2 year programs with no debt.
Comment by rjs — October 24, 2011 @ 4:32 pm
All that said – I agree with being wise about choices. Too many make unwise choices and are saddled with a debt that is not reasonable – even among those who are in the “traditional” 4 year undergraduate degree programs.
Perhaps you feel $20,000 is too much – I used this number for the comparison because it is approximately what a new car costs. I don’t feel that $20,000 is unreasonable (although less is clearly better) for the benefits of a degree.
Comment by rjs — October 24, 2011 @ 4:38 pm
What I find woefully absent from this discussion is a refuting of the necessity of a loan to get an education. And to be honest that frustrates me … because I think that anyone who graduates from school with a ton of debt and then blames the school or the debt for their life troubles is in fact whining.
Maybe I place a little more on people’s responsibility in this, but no one held a gun to their head and made them sign the papers. You can argue a metaphorical/cultural gun was, but isn’t that still the person’s responsibility to sort through perception/reality to find the truth.
In my home state, TN, when I got my undergrad, I got a decent score on my ACT. I got an academic scholarship. I got a job to pay for my room and board (16k – 40 hours a week), and a little spending money. I got married, and went to grad school … at a private university, and cash flowed it … on my (23k) and my wife’s (30k) salary. I finished that degree in 2007, so it wasn’t an eternity ago. how much school debt do I have? None.
Just because it is hard to do (get through school without debt), doesn’t mean it isn’t what you should do, and is the right things to do.
You don’t need to spend 50-60k on a private university to be a teacher. That isn’t the school’s fault. It’s yours. If you want to be a teacher, you can go to a state school for less than half that and still get everything you need to be a good teacher.
You want the cost of schools to go down? Stop going to the ones that cost so much. Stop giving those schools the power in the situation. Recognize the difference between gaining knowledge and getting an education.
In TN (as it is in other states), if you maintain about a B-C average, you have your tuition paid for through the Hope Scholarship. So … if you live at home and go to school (and in TN – if you live in the state, you live at the farthest about 1.5 hours from the nearest public university) you can go for next to nothing.
Mad because you don’t live in TN? If education is important to you and your children … then move there and gain residency.
Can’t afford school? Go part time. There is no law that states you have to finish in 4 years. Decide on the front end if what you want to do even requires a degree. Maybe trade school is the best option. Maybe no school (read ol Steve Job’s memoir for more of that)
Can’t afford a four year school? Go to community college and save up to transfer.
This sounds like a rant … I know. But we need to stop being mad at the schools and the banks for the problem of student debt. Student debt is a personal problem, and if more people started to see it that way, it would become less of a global problem.
Comment by Thomas — October 24, 2011 @ 5:33 pm
rjs, what are the basic economics of universities? is it 30% teaching salaries, 10% research, 40% facilities etc?
Comment by DRT — October 24, 2011 @ 5:36 pm
There is little to no reasoning that justifies spending exorbitant money on a, fairly, worthless education that will never return its investment.
I worked my tail off to keep my loans at a minimum while my brother sat around and took in and took in…he graduated with $85k in loans and can barely make the payments. Makes no sense to me.
Also, my nephew showed me his loan approval for the first year at college. The school costs $18,500 a year…his loans are for $40,000 and he has to turn down the extra money or he gets it, in cash, after his classes clear. If his parents didn’t check the paperwork what’s gonna keep him from pocketing the money?
Comment by Robert A — October 24, 2011 @ 6:29 pm
As a young minister who recently received his bachelors at a private baptist school I now find myself pastoring a small church and barely able to make the loan payments for my education so far. Which is tough considering that many churches want a pastor with a MDIV or more, a degree I can’t imagine my career paying for. When I called my school to see what options I had they told me to enroll in seminary…… take out some more loans…. and hope that in three years I have a job that can pay for it all.
Comment by Johannes — October 24, 2011 @ 7:39 pm
@ Thomas #31
I hate to feel like I’m playing the victim, and I don’t want to belittle the difficulties of navigating the system of higher education but…
I think you’re right about describing the student debt problem as a “Personal Problem”. These are individual choices people are making. My own story involves moving to another state (CA), waiting a year for residency, then attending a community college for dirt-cheap and graduating with an AS debt-free. I think the major difference in my story as compared to others is that I was 24, and wanted an education in Graphic Design. I was motivated, married, and am anti-debt.
My brother attended Calvin College in MI, and is almost debt free because of student scholarships and hard work. These are personal choices to be sure!
Comment by EricMichaelSay — October 24, 2011 @ 8:01 pm
No situation is perfect, but if you’re reading this and have kids and expect they might use some higher education, then let me say “start saving now” to the best of your ability. That can take a lot of the bite out of it. Same thing with retirement and other big life events. It’s hard to prepare for these things with 2 years to go.
We like to complain about the rich getting richer, but the rich have figured out that being on the receiving end of compound interest is a lot better than being on the paying end.
Finally, educate kids/students/friends that debt is really not a good thing. We’re slow to say this, but the Biblical message against debt is pretty clear. Paying debts off early gets rid of them faster. Culture tells us “interest rates are low” but the Bible doesn’t create gray areas with interest rates.
For some it’s late in the game, but for everyone else, resolve to change things sooner rather than later. You’ll be glad.
Comment by RobS — October 24, 2011 @ 8:49 pm
I think the problem is that parents view college as something that is always beneficial, almost without regard to price. There is no question that education is useful, but nothing is infinitely useful. So, the question is where the tradeoff occurs.
I’ve come to suspect that parents and teachers tend to give kids good advice for getting a job in a job market that existed 30 years ago. That does the kids little good today.
I’m also skeptical of studies that show a rate of return on college, since they look at wages made by current employees who went to college 5-10 years ago. When college prices are going up way above the rate of inflation 10 years is an eternity – these studies are at risk of being out of date before they are even published.
I view college as a means to an end, and not an end in itself. You then need to evaluate its cost in light of this.
I’ve got a decent job, and I’d love to take a night class or two for enrichment at a local seminary. However, this would be done without any particular goal of having a return on investment, and using money that I can spend at my discretion without endangering my family’s well-being.
A decision to spend $75k on a college education for a kid who has no clear idea what they want to do with their life or how college will enable it is just foolish. There is no guarantee that it will ever pay off. Now, if a kid wants to be an engineer and gets top marks in math/physics, then by all means send him off to a reasonably-priced college since his career prospects will easily justify the risks.
Somebody posted that the current system really works against the average kid – the one who can’t qualify for tons of merit-based financial aid. Unfortunately, the job market is very cruel right now. I work at a company that historically has tended to hire the best and brightest in its industry and they fire some of these best and brightest by the thousands each year. If you want to stick around you need to offer something that can’t be bought for $20/hr overseas, and $20/hr gets you quite a bit overseas. “Average” performers just don’t stand a chance – not when you need to be among the best just to get hired in the first place. So, what is the point in educating somebody to be an average engineer, or whatever, when nobody wants to hire an average engineer?
I think some of the bigger problems have to do with a shift in our society away from employment. Modern society just doesn’t need that many workers. We used to need to employ 50% of our population to grow food. Today a company like Facebook can make $4 billion/yr and fit all its employees in a modest office building. However, we just don’t have a social system in place that can handle having 10-20% of the population being unemployed, and I suspect that will only get worse.
Comment by Rich — October 24, 2011 @ 9:43 pm
Despite my ranting, I do agree that we make choices and that there are a range of options and the community college, then two years at a state university is a viable option. We saved for our children’s college–but tuitions have tended to jump and make it difficult to save enough, especially with three. We are fortunate to have what we have–but I do think it is difficult. I don’t think the answer is to deny the average child an education or force him or her into a “cheap” education–we have to value the gifts of all people. And I stand by my understanding that there really are very few viable options to a BA in this culture–if you want to make more than minimum/low wages. I do want to push back against working 30/40 hours and going to school–I think often we mistake the degree for the education. Education takes time. Sometimes loan are worth it.
Comment by Diane — October 25, 2011 @ 10:28 am
Man, its a shame for the next global generation to be burdened with these massive debts they were sold as a good investment… wait, this only affects students that attend university in the United States? Students in Europe don’t have to deal with this?
/sarcasm
Bemoaning this without a political will to reexamine our political and economic assumptions is merely taking the edge off of our guilt. A friend and I proposed forgiving student loans as the ultimate stimulus back in the fall of 2008. Too bad it was just us at breakfast that morning.
Comment by Richard — October 25, 2011 @ 1:49 pm
Interest article today on the Obama plan.
http://news.yahoo.com/obamas-student-loan-debt-relief-plan-too-good-234242818.html
I certainly did not know that
Comment by DRT — October 26, 2011 @ 11:22 am