Our first guest post on the ERN blog! Ever! Let me introduce Drew Cloud who runs the fascinating blog studentloans.net. Not too long ago, I remember U.S. student loans surpassing one trillion dollars (a one with 12 zeros!) for the first time. Now we’re at $1.4t and the amount just keeps growing. Make sure you check out Drew’s blog, too, especially the treasure trove of data on the topic. Take over, Drew!
A quick online search of student loan debt in America reveals the astonishing truth about the widespread, increasing expense of attending a college or university. Currently, more than 44 million borrowers have amassed over $1.4 trillion of student loan debt, and each year, the total continues to climb. While taking out student loans is now firmly embedded in the college experience for the majority of students, the picture remains bleak for borrowers. Here are five unfortunate facts about student loan debt in America to prove that point.
The Average Loan Burden
The Institute of College Access and Success reported that the average student loan debt undergraduate students leave college with is just around $30,000. The number has steadily increased over the last few years, up 4% from 2015, a rate higher than the average annual inflation or cost of living salary adjustments. Part of the problem aiding in the increased student debt burden faced by graduating students is linked to a decrease in state funding for public schools, resting at 18% lower than a decade ago and showing no signs of increasing in the near future. Graduates who select a standard repayment program spread over 10 years face a monthly payment of around $300, limiting their options for setting money aside for emergencies, establishing a retirement nest egg, or accumulating enough to contribute to the down payment for a home.
Student Debt Outpaces Credit Card Debt
As reported in early 2017, the total outstanding student loan debt now surpasses credit card debt. The Federal Reserve Bank of New York published a report citing $779 billion in credit card debt held by all Americans, nearly half of the student loan debt burden. Although credit card debt can be more costly in terms of the interest rate charged by card issuers and banks, the payment terms carry far more flexibility than student loan repayment programs as well as lower minimum monthly payments on revolving balances. Neither debt burden is ideal, but the fact that student loans outpace credit card debt points to a clear problem facing younger generations of borrowers.
Graduate Students Aren’t Immune
Although most statistics point to the student loan obligations of undergraduate borrowers, graduate and professional degree students are not immune to the crisis. Nearly 40% of student loan borrowers used the funding to finance a graduate-level degree or program, and when added to loans taken out for undergraduate studies, the total amounts due are hard to swallow. For an MBA student, the average student loan debt is $42,000, while a Master of Education graduate leaves school with just under $51,000. Law school students and medical school graduates have the most staggering average loan balances, currently at $140,000 and $161,000, respectively. Although graduate degrees often lead to higher paying jobs shortly after graduation, advanced degree students face a substantial debt obligation for an extended period of time.
In recent years, several repayment program alternatives have become available to certain borrowers, specifically those who are in low-salary jobs or public service positions. However, the addition of income-based repayment programs has not helped ease the potential for default among the millions of student loan borrowers. As of April 2016, nearly 40% of Americans who borrowed from the Department of Education are not currently making student loan payments or are behind on monthly payments. In total, more than $200 billion is owed, with 3.6 million borrowers in default, 3 million delinquent, and 3 million having postponed repayment due to economic hardship. These figures represent higher percentages than Americans who have defaulted or stopped paying on revolving home equity loans, credit card debt, and auto loans.
Private Loans on the Rise
The Department of Education sets limits on how much total funding an individual can receive to pay for higher education expenses. While these amounts are relatively high, students who have no means to pay for tuition, room and board, or books out of pocket often face the need to borrow more than the federal maximum. To meet the growing needs of cash-strapped borrowers, the use of private student loans has increased to just under 20% of all student loans. In some cases, private student loans are used to pay for expenses while a student attends school, and in others, graduates utilize private lenders to refinance federal student loans originally funded by the government. In either case, private student loans have fewer repayment options than federal loans, leading borrowers down a road of inflexibility should financial circumstances change down the road.
The student loan debt crisis continues to be a point of contention among current students, graduates, parents, and lawmakers. Until some stops are put in place to reduce the rapidly increasing cost of attending a college or university or individuals are more motivated to set money aside for their children or grandchildren’s future education, there is no end in sight to impact student loans have on Americans.
Drew Cloud is an enthusiastic aspiring journalist who recently started his own news outlet, The Student Loan Report. He spends his spare time covering one of his favorite, and most relevant to his finances, topics: student loans.