By Wolf Richter, editor at Wolf Street. Originally published at Wolf Street
This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:
Enrollment in higher education in the United States has dropped by 11% from the peak in 2011. That’s a drop of 2.2 million students over the span of eight years, according to data from the Student Clearing House.
But over the same period, when student enrollment dropped 11%, student loan balances have skyrocketed 74%, to $1.6 trillion. The biggest portion of these loans is held by the federal government. It funded them by increasing its own debt.
So what’s going on here with this 11% decline in enrollment since 2011, and the crazy 74% surge in student-loan balances?
Moody’s, which rates structured securities backed by student loans, and which rates universities and the bonds they issue to fund their pet projects, and which rates Commercial Mortgage Backed Securities backed by “student housing,” well, it came out with a detailed analysis of what’s causing these student-loan balances to balloon like this – and it’s not what we thought.
Moody’s found that with scholarships, grants, and tuition-discounting all included, total college costs have largely tracked the increase in median household incomes since 2012. But before 2012, the ratio of college costs to household income had exploded.
For example, the average cost of public four-year schools, for students paying instate-tuition, runs just over $15,000 a year, which is about 24% of the median household income.
But that ratio of 24% of household income is down from 2012 when it peaked at about 25%. It has recently trended lower because household incomes have ticked up a tad faster than the costs of those schools.
The big damage was done in the years between 2000 and 2012. Over this period, for students at public four-year schools, costs exploded from 14% of household income to 25% of household income.
In dollar terms, costs soared 56% over the 12 years, from about $9,000 in the year 2000, to over $14,000 in 2012.
These costs include room and board, tuition, fees, tuition reduction programs, grant aid, and the like.
In terms of loans: In 2002, total debt per bachelor’s degree borrower – so people that actually took out loans while going to public four-year schools – was $22,500. But by 2012, this had soared to $27,000. And then it hit a ceiling. By 2018, this debt per bachelor’s degree borrower had ticked up by only $200 to $27,200.
This means that there are fewer students, and those fewer students have stopped borrowing more.
The total student loan balance of $1.6 trillion reflects the new loans added to that pile, minus the old loans getting paid down by former students. So this 74% surge in student loans since 2011 is a mix of those two factors:
- New loans being added;
- Old loans getting paid down.
And we’ll look at both of those factors.
So enrollment has been dropping, and student borrowing has hit a ceiling, and the ratio of student borrowing to household income has flatlined.
And Moody’s analysis found that the actual amount of new loans taken out every year – so-called “originations” – has declined since 2012, after the explosion of originations in the years between 2000 and 2012.
Originations peaked in 2012, with $115 billion in new loans taken out that year, up from $40 billion in new loans in 2000.
Since 2012, annual originations have dropped 8% to about $106 billion in 2019, which is below where they’d been in 2009.
This decline was driven by a 24% plunge in borrowing by undergraduates. In 2012, these undergraduates took out $72 billion in new federal student loans. By 2019, this had plunged to $55 billion in new loans.
A disproportionate share of new debt over the past few years has been incurred by graduate students. For example, in 2016, they made up just 15% of all students but accounted for about 35% of all new loans.
Many student borrowers don’t owe all that much: At the end of 2017, the median amount owed by the 45 million federal student-loan borrowers was around $17,500. Meaning that about 22.5 million students owned less than $17,500. All combined, half of the student borrowers owe less than $200 billion.
But for a fairly small group of student borrowers, the balances are gigantic: At the high end, 7% of federal borrowers owe over $100,000 each (often those with graduate degrees). And together, that 7% owes $500 billion.
So new borrowing exploded in the years up to 2012, and contributed a lot to the outstanding student debt. But since 2012, as enrollment fell and costs hit a ceiling, new borrowing has been a much smaller factor.
And what was the largest factor in driving up student-loan balances since 2012: student loan repayments have slowed to a trickle.
The repayment rate – that’s the percentage of existing debt that is eliminated in each year through repayments – averaged only 3% over the past 10 years. In 2019, it was down to just 2%.
In other words, in 2019, only about $30 billion of the outstanding student loans were being repaid, but $106 billion in new loans were being added.
This means that the old debt is coming off the books at snail’s pace, while new debt piles on much faster, and this disconnect causes the loan balances to balloon. And this situation has gotten much worse since the Financial Crisis.
For federal borrowers whose payment obligations started in 2006 to 2008, 40% hadn’t made a dent into their initial balance five years later.
But for the cohort for whom payment obligations started in 2010 to 2012, of them 49% have not lowered their initial balance at all (up from 40% five years earlier), and their monthly payments only covered interest. In many cases, payments didn’t even cover interest, and the balance of those folks actually grew. This is a serious deterioration from five years earlier.
By school category for this cohort for whom payment obligations started in 2010 to 2012:
- 20% of former students with degrees from private nonprofit schools, which include top-notch schools, have not paid down their initial balance one iota in five years. For all former students at these schools, so those with and without degrees, this jumps to 33%.
- 21% of former students with degrees from four-year public schools have not paid down any balances in five years. For all former students at these schools, so those with and without degrees, this jumps to 35%.
- 57% of former students at two-year schools had not paid down their initial balance one iota after five years.
- 75% of former students at for-profit schools who did not get a degree have not paid down their initial balance after five years.
The base line for federal student loans is that they should be repaid in 10 years. But only about a quarter of all balances are currently being repaid at that 10-year or shorter rate. Three quarters are being repaid at a much slower rate, or are not being repaid at all.
Moody’s found several primary causes behind this slow-repayment issue:
One, many graduates from for-profit colleges, two-year schools, and non-selective four-year schools, or students that didn’t complete their degrees, face underemployment and lousy job prospects, and they have trouble with their student loan payments.
Two, a biggie:People voluntarily choose longer repayment terms. Extended repayment plans are available to students with high balances. And students can consolidate multiple federal student loans into a new federal loan, and this new loan may offer longer repayment terms. There are now over $500 billion in federal consolidation loans outstanding, and many of them have terms of up to 30 years.
And three, another biggie: during the Great Recession, the government created the so-called Income-Driven Repayment plans. These plans were designed to make it easier for federal student loan borrowers to service their debt. Payments are based on income, family size, the state the borrower lives in, and the federal student loan type. The plans allow for payments to be so small that there is no repayment of the initial balance; or worse, for payments to be less than the monthly interest charges, where the outstanding balance actually grows.
As of mid-2019, loans under IDR plans have surged to $480 billion.
In addition to all this, borrowers can make use of student-loan deferments and forbearance options, where they don’t have to make any payments at all for a while, and loan balances grow as interest costs accrue.
And the incentive for former students is huge to drag these loans out: IDR plans include provisions of debt forgiveness after 20 or 25 years of qualified payments.
IDR plans are mostly used by borrowers with high loan balances: Over half of all the loans with balances over $200,000 are in IDR plans. They amount to $121 billion, or 25% of total IDR balances. These people are just biding their time until taxpayer-funded debt-forgiveness kicks in.
Under these IDR plans, those who splurged and borrowed recklessly, win the most. And those who sacrificed the most and worked like dogs, and whose parents sacrificed the most, and who went to cheap schools, to minimize their debt, they got shafted.
And there is another factor why student-loan balances continue to balloon: Despite all the deferment and forbearance options, the IDR plans, and the extended term plans and loan consolidations, etc.: The delinquency rates are very high for student loans. But defaulted student loans cannot easily be discharged in bankruptcy. So the slate cannot be cleared, and these defaulted loans stay on the books, and are considered part of the loans outstanding.
So, seen from the angle of slow or no repayments that have been a big driver behind the ballooning student loans since 2012, this fiasco takes on different nuances.
You can listen to and subscribe to my podcast on YouTube.
48 comments
Comments are closed.
Given that federal loans are nonsense and unnecessary to generate revenue (for the federal government), the whole scheme is truly unconscionable. This is a vast evil perpetrated on the young. I’m thankful I paid mine off. For too many, they may die with the debt.
Agreed. Good thing there’s a populist uprising in the works. Millions of us believe the time is now
It’s simple – it is the for-profit schools. It’s disingenuous to blend those into the rest of the data.
If you look at real, residential colleges – the trends are fine / favorable.
The types of ‘student’ who choose for-profit / online schools is the cause of this problem.
I know a lot of people who went to state institutions and still managed to wind up with a massive debt load. I could have easily been one of them. Nice try on blaming the victims, though. Maybe we should be looking to bloated admin budgets and unscrupulous financial professionals who are apparently fine giving massive loans to young people with little to no income.
This is not what I see
I don’t know that you could be more insulting. One of the reasons we use for profit schools is because they have flexible hours for on campus classes, so we can work full time, go to school part time. Not everyone is comfortable taking out student loans to attend a residential, traditional university.
Look into your local community college. They have flexible hours (many don’t have Friday classes) and waive fees/tuition for many students. My local CC even provides discounted text books for low income students. They are even controversially eliminating the Algebra II requirement (an impediment for some students) for some academic tracks.
Unlike the for-profit schools, they’ll honestly tell you just how much time and effort college academics demands. Many schools even have two-year, technical certificates for bookkeeping, automotive services, and marine diving (off-shore oil rig jobs), etc.
Yes, definitely. I’m in Calif and for many students (depending on class load per semester), you don’t even have to pay for the class units, just books. The choices and quality of classes are very good. The only thing they can’t compete with is snobby name dropping of name-that-expensive-school.
I think at least part of the drop in attendance comes from kids who are smart enough to see that spending a ton won’t necessarily give you a return on your investment.
Last thought–if the student loan issues are not resolved, more and more of these folks are going to find those loan servicers sucking at their social security distributions later. Ya think living on SS is tough now, wait till 25% (or more) of it is getting taken away. These guys are gonna have to live in a mud hut in a far off land for their retirement…
Gonna need some sources for this claim. I know no one who has attended for profit universities but they all have massive student debt, myself included. There’s not much of a gap between “real” and for profit schools anymore.
I’m not quite sure why people are defending the for-profits. Most of them were awful. I saw “were” in the past tense because it was right around the time of the student debt surge in question that a number of the big for-profit schools failed (Corinthian, ITT, etc). They went BK and left behind a ton of student debt that had very little chance of repayment. Most of them had short-term programs that were very expensive, passing all that debt onto students within just a year or two rather than dispersed over four or more years. Some of it has been discharged, but not much. This doesn’t explain everything, but I’m sure it’s part of the upturn.
And yea, “non-profit” schools are becoming nearly as bad. The competition for students and funding has led to some very for-profit-like practices. It’s sad to see.
I didn’t see a comment above that defended the for profits. I saw rejections of a claim that it was only students who attended those that had a problem.
I don’t know why a for-profit corporation couldn’t provide a good quality education at a decent price, creating competition for quality and costs.
The reason why it hasn’t worked so well is the availability of student loans and the G.I. bill. From what I can tell, many of the for-profit colleges cater to veterans and active-duty military. BUT IT DOESN’T HAVE TO BE THIS WAY.
Interesting timeline for the real surge in college tuition. I remember experiencing this at the University of Kentucky during the Aughts. The increase was sold (bi-partisan and across all levels of governance, from federal on down to local) via a then UK-president’s “Top 20 Business Plan,” itself drafted as a roadmap to achieve a 1996 state mandate for UK to become a nationally ranked public research university. (The “Top 20” aspect played well in basketball country.) Here’s something I co-wrote in 2006 on that cost-creep and how it was sold:
https://noclexington.com/wages-of-a-top-20-education-nougat-re-post/
It was nice to see the numbers behind different collegiate student debt categories. I now teach at a community college (other side of town from UK) and have long been sensitive to the way that research and private universities often get used as stand-ins for discussions on post-high school education. As a sort of cap to that 2006 article on UK, here’s one written in 2019 by a friend that looks across town at my community college’s business marketing strategies. I think it’s part 2 of a 4- or 5-part series.
https://noclexington.com/free-coffee-and-customer-retention/
I wonder what the balances would be if student loan debt was still dischargeable in bankruptcy.
It’s not like the Feds couldn’t take a haircut. As it is, the Feds are “mowing the lawns” of academe.
Too many factors to list in one post, but let me list the ones that are most salient, in my personal experience.
A dramatic increase in tuition, unaccompanied by any significant increase in quality of education. Universities and colleges need to answer the simple question: where has the money gone? When faced with that question, they’ve resorted to empty hand-waving about “increased costs”, or – even worse – blamed an increase in faculty salaries, at a time when adjunct professors are living on salaries that would make the standard of living for medieval monks look luxurious by comparison. Universities have raised tuition without increasing the quality of education, or the pay for rank-and-file professors, and need to account for where the money has gone. (This is, incidentally, why I am against the free-college-for-all plan – because whatever rat hole the money has gone down will only swallow it even faster after the universities get their blank check from the Federal government.)
A dramatic increase in lifestyle expectations for students. I know this looks like blaming the victim, but the real blame here is on the parents and educators, who have not set proper expectations. “If you live like a lawyer when you’re a student . . . ” and all that. The days of students living four to an apartment and riding public transportation and eating instant noodles are all but gone, replaced by luxury apartments and car payments on brand new automobiles and nights at expensive nightclubs, all fueled by the illusion of free money. Again, this falls on parents and educators who have failed to get realistic with incoming students on what their living expenses should be – but it also falls on Federal lending programs, whose cost of living allowances have been absurdly high, which has encouraged students to borrow much more than is needed. (And then there are the students who deliberately borrow the max and put everything left over in, you guessed it, stonks. Or Bitcoin.)
Supply and demand imbalances for certain degrees. This goes well beyond the usual suspects in the humanities. There is virtually no market for graduates with degrees in political science, communications, and many of the generic degrees offered by community colleges. Do students know that? Do universities communicate that? The message is getting out – slowly – but mainly through hard experience, not clear communication. And universities should be dramatically limiting admissions for advanced degrees where they know perfectly well that the job market will be extremely limited.
Edit: related – high dropout rates, which leave students with debt but no marketable degree at all. Low admission standards are primarily to blame here.
A shortage of student loan repayment programs among employers. A few employers offer them – mainly government agencies who are focused on retention. Student loan repayment programs are a fantastic way to boost recruiting of top talent, and to retain employees, and really should be considered by more employers.
Pension plans own a lot of the debt. Student loans get bundled up into securitized products, and then get sold to various long-term investors – most importantly, pension plans. If you want to write off student loans, that means a pension plan will very likely take a hit. So forgiving student loans becomes a decision between the interests of impoverished graduates versus retirees, or – of course – the taxpayer. No politician wants to make that decision, which is why the deadlock on forgiveness of student loans is very likely set to continue.
The number of faculty per administrative staff has been steadily declining creating increasing overhead cost. Also, more and fancier buildings, both on campus and for dorms, also increase costs without necessarily allowing for more faculty and students to be engaged. https://www.forbes.com/sites/carolinesimon/2017/09/05/bureaucrats-and-buildings-the-case-for-why-college-is-so-expensive/#548f5b01456a
When I went to university in the late 70s, the buildings were generally concrete block construction with pretty utilitarian interiors. They could firehose out the dorms to clean them in the summer if they wanted to as they were just concrete and linoleum. The academic buildings were generally the same construction if built in WW II or later. Earlier ones were stone.
Now many of the academic buildings rival Apple’s new corporate headquarter building and the dorms are better than many apartments for professionals.
> The days of students living four to an apartment and riding public transportation and eating instant noodles are all but gone, replaced by luxury apartments and car payments on brand new automobiles and nights at expensive nightclubs, all fueled by the illusion of free money
This is a disgraceful caricature with little basis in reality. The only students like that I’ve seen are a tiny minority who come from rich families. Colleges build swanky dorms to attract those students, who don’t need financial breaks or tuition assistance.
Most students are barely getting by, just like their working class parents. The latest trend is ramen soup flavored with ketchup packets.
New study finds that 36% of college students don’t have enough to eat
Homelessness among college students is a growing crisis
My word. WTF are you smoking Dude? I could some of that stuff for my next batch of brownies. Here in California just paying for housing is a Sisyphean effort of near futility.
Personal experience with family (grandchildren) attending UC Berkley/Santa Cruz/other Southern CA colleges over the last ten years. I observed no such swanky accommodations. 4 to a room; cafeteria style foods….and they also worked to help pay. No time for movies, sports, dining out, etc…..These kids worked their as#$ off!
California’s public colleges and universities are an exception, with increasing enrollments and lower levels of student federal loan debt, at all degree levels.
Well, California’s public colleges are an exception because they are overcrowded. Most UC and CalState campuses are bursting at the seems with students with 4.0++ GPA’s and unbelievable extra curricula credentials. (The CA higher education system is the largest in the world for on-site education.) Networking in that environment makes attaining later employment much easier (which reduces loan debt).
I’m not onboard with some of the posts premises; there are undefined issues to this student loan problem. Some are described here by the commentariat. The whole idea that educating a nations citizens is a profit center for the financial industry is ridiculous.
And this quote is unnecessary:
If your going to demonize and divide, the target should be the financial industry and their protectors in government.
Yea, I absolutely hate the idea that because I paid my oversized debts you should have to pay yours as well. This is the same logic that leads to all sorts of dysfunctional behaviors: my father beat me, so I’m going to beat my son, my boss treated me like crap, so that’s what I’m going to do to my employees, I got ripped off, so it’s only fair the next guy gets exploited, too. I guess it’s the bizarre idea that we should all suffer rather than right an injustice.
Of course, this only applies to suffering. The idea of passing along good fortune is seen as an act of exceptional (and optional) generosity rather than just normal behavior.
Indeed, the resentment politics bottled up in that jarring paragraph are appalling.
But this is a textbook example for how the 1% are able to divide-and-conquer the 99% and grab all the real loot for themselves. The scraps and the trickle-down are fought over from the top ranks all the way down to the bottom, with each person trying to grab an advantage over the next person down the chain. And they construct an idea of virtue and “fairness” so that punching down is actually virtuous.
The alternative, of course, is to understand that advantage itself is wrong – that competition itself is wrong.
The alternative would be universal material benefits – such as a universal basic income – which of course are “unfair” in the sense of competition, since someone is receiving an “advantage” they didn’t pay for. The error here is to think of a benefit as an “advantage”, when it should be looked at it in terms of basic needs and resources.
The right kind of unity comes out of the understanding acknowledgment that there is an “unfair” public commons – and that is okay – and that this is distinct from the things that you get to build for yourself.
Thanks for this post. Great read.
Simple answer: cost controls. If the Feds back up any loans without doing any cost controls (socialism!) or due diligence, or remedy (bankruptcy) then what happens? Parasites latch on, bureaucracy blossoms like a rose, and costs go up 10x faster than the general rate of inflation. See also: housing crisis, ACA, and many others I’m sure. Shorter: when grifters smell free money, they go for it.
Your analysis is a little dated, but I cannot dispute your final conclusion: “When grifters smell free money, they go for it.”
As a technical matter, though, the US Department of Education (under Obama) quit backing private loans back in 2010. Instead, they began issuing loans directly to students (and have hired multiple private companies to service those loans after the students graduate). The net result, though, is largely the same: Nobody is looking at students’ ability to repay, and the loans get larger and larger and larger. And because the loans are issued directly by the Education Department, loan servicers can use debt-collection tactics that private banks never could. Like garnishing Social Security benefits. I’m not at all convinced that students benefited from this change.
“I’m not at all convinced that students benefited from this change.” They didn’t.
It surprised me that folks were getting loans with no proof of continued enrollment, no required GPA level, getting a loan for a degree that is unlikely to provide sufficient to repay (I’m looking at the example of 100K for a degree in music therapy that now garners a $15/hr job, but take your pick). At a party one fellow confessed freely that he was taking these loans because they were so easy to get, and wasn’t going to school at all. Unfortunately, given free rein some people will make foolish purchases with the money, and the party will stop sooner or later. On the flipside, I believe that student loans should be allowed in bankruptcy. And BK isn’t a free pass either. It costs to get thru the cycle, and you’re spending the next 7 years with little to no access to credit. Even after the 7 years is up, that BK is still reporting on the credit agencies over 10 years later.
I do believe that servicers/lenders need to go belly up if they lend foolishly.
>>Under these IDR plans, those who splurged and borrowed recklessly, win the most. And those who sacrificed the most and worked like dogs, and whose parents sacrificed the most, and who went to cheap schools, to minimize their debt, they got shafted.
Wolf has beat this anti-solidarity drum in other posts on the subject, but where is the evidence that the high balances are a result of “splurging” by reckless borrowers rather than people who fell on hard times and got whacked with all kinds of fees? And this post itself states that some of the worst of the debt comes from presumably unsophisticated attendees of for-profit, mostly scam, schools.
My working class family did not save at all for my college back in the day because we were not even making ends meet as it was. Financial aid grants allowed me to go to college but I still had to take out large loans for living expenses on top of working as much as I could during the semester (work-study paid too little so I tried to get off-campus work which is not easy).
I paid off all my loans but I feel solidarity for people who weren’t as lucky as me, including “middle class” students who would not have qualified for as much financial aid as I did.
Wolf is Exhibit A of why we badly need to turn out younger voters who understand current economic realities and have some sense of solidarity.
Agreed, Wolf’s language is typical of those who try to divide society into two classes: the worthy and the unworthy, and try to convince themselves that only the unworthy suffer. Corporate media uses the exact same trick to prevent their audience from ever sympathizing with the poor. In the real world everyone has to choose from the same array of crappy choices. If Liberals are obsessed with dividing people into victimizers and victims, the Right is obsessed with dividing victims into worthy and unworthy, ignoring the odds stacked against everyone but the rich.
A lot of the people with those large student loan balances only entered school / graduate school because they couldn’t find a job. College is one way our society delays people from entering the workforce. Prison is another.
The military is another way of delaying entry to the workforce.
It also is a popular choice among those who can’t afford college tuition. If you can put up with the [family blog] that you’re required to deal with, you can get great training while in uniform. Matter of fact, one of my friends learned how to be a professional photographer while he was serving in the Marine Corps.
There’s no reason why our young people should have to put their lives and their health at risk to serve as mercenaries to protect the fortunes of the hedge funds that own oil & gas stocks just in order to get a college education.
At my community college your point was reinforced. This was in 2006 and a lot of the women were in school because the loans covered rent, childcare and a car and the fathers of their kids were not paying support……most of the fathers could not afford it. The women really had no options and they figured that the government really could not do anything in the end so they let their balances ride. No one had any illusions about getting a high paying job and paying the loans off. We need to realize the government is not going to get blood out of stone. Let us hope the next administration gets rid of student debt and stops giving federal guarantees of it. This would force the schools to lower tuition and costs and it would prevent a lot of people from going to college because they can’t find anything else. Even the professors were frustrated because these students were not interested in the classes. This is the result of outsourcing 4 million jobs to China.
From personal experience, the cost of getting a medical related degree is astronomical, and the competition to get into schools means some graduates need to get a science related masters degree to even be considered. I have a family member who will owe a half million, probably more since she is trying to get accepted into a specialty program
The 11% enrollment drop is primarily a function of demographics:
https://i.insider.com/5ada4c0319ee8620008b4674.
The size of the today’s college-age population is significantly smaller than it was 9 years ago. [Though it’s fair to note that today’s astronomical tuition rates may be scaring additional students away.]
As for total debt loads continuing to rise… That’s primarily a function of greedy college administrators taking advantage of the fact that the US Department of Education will lend money to anybody with a pulse, regardless of whether or not they’re likely to be able to afford the payments.
This^, exactly. The colleges will charge what the market will bear, whether one is paying with cash or credit. Follow the money: the colleges have been making a windfall for 2 generations since the availability of loans exploded. So have their vendors and contractors swinging those cranes around in every college town I see. The colleges have no skin in the game whether the student admitted can handle the work, future likely income from a job in field of study and any thought to the creditworthiness. Classic moral hazard.
The Dad who confronted Warren is only partially representative of those played for suckers. A large number of high school students forgo the college route entirely or are paying as they go in community college @ < $100 / credit hour.
I am not heartless, however. Here is a universal bailout plan: everybody gets a check from U.S. Dept of Treasury for $200,000. Those with student loans must use the money to pay those first; then anybody with other debt must payoff that; what is leftover can be used for anything, including savings or spending. Just conjure up the money like has been done for 20, or is it 30 year wars, the on-going bankster bailouts and pallets of money from the likes of Rumsfeld and Obama which mysteriously appear in the middle east from time to time. Any money used to pay off any debt will not be inflationary; the money dies in money heaven. Oh, and no more student loans. Lets see how the colleges adjust their costs when demand plummets without government loan availability. They can always loan their money from their endowments.
So, if one owes $400,000 in combined or consolidated debt gets $200,000 gratis and is required to apply all $200,000 to their outstanding debt which they can’t pay down currently, how does that help the borrower?
If the Fed can provide endless trillions in low to no interest repo loans to big banks to pay for casino gambling with derivatives; the government can continue to fund unending wars based on fictions, then a debt jubilee for burdensome student loans and performance-based free college for all seems a more sane choice toward improved living standards while growing innovation and employment.
Unfortunately, under the current model of neoliberalism, the most important thing is increasing the wealth of oligarchs, eliminating the middle class, and creating a new feudalism.
I
Do these numbers include Parent Loans? (I suspect they don’t.)
Yves:
This should help make the argument on student loan debt by associating how many people are in debt with “Direct” student loans and how many, plus dollars, are actively paying back the loan. The rest are in some form of not paying back. I do not know it the ~$1.6 trillion includes penalties also. The nation is arbitrarily killing its economic productivity by burdening much of a generation (Millennials) and those coming afterwards. That lost economic productivity in itself would “probably” equate to the total debt over a decade. It raises the question of whether it makes sense.
Alan Collinge (Student Loan Justice Org.) is in Iowa talking to presidential candidates. I believe he intends to go from state to state for the Dem candidate conventions.
Student debt statistics by loan status (Direct Loan Program)
Loans in repayment $623.7 billion 17.8 million borrowers
Loans in deferment $124.3 billion 3.7 million borrowers
Loans in forbearance $111.1 billion 2.6 million borrowers
Loans in default $101.4 billion 5.1 million borrowers
Loans in grace period $43.9 billion 1.7 million borrowers
https://studentloanhero.com/student-loan-debt-statistics/
Ye gods, those are horrifying statistics. Only 66% of the loans are where they’re supposed to be (i.e., either in repayment or in the short grace period immediately after graduation). On the other 34%, something has arguably gone wrong. [Most of the deferments and forbearances are simply defaults waiting to happen.]
I’ve gotten fairly jaded about government dysfunction over the years, but the student loan program makes my blood boil. I don’t think any program out there has ruined the financial futures of as many people as student lending has. Most of those ex-students in default will never recover, and there are literally millions of them. The US Department of Education is a predatory lender.
Grumpy:
This is just student Direct Loans. It does not include Parental Loans or Student Stafford and Perkins Loans. If you are a Grad. Student your loan will cost more. The argument by Jason Delisle and Beth Akers is they will make more money in the end so they can afford it.
And it does not include families who refinance their homes or draw on home equity lines of credit to pay for kids’ college expenses. There are a nontrivial numbers of people who have used home equity for educational expenses. A practice which further disguises the extent of our higher education debt burden. Consider these in re Bill Carson’s post below.
Yes, I agree. There is more to this.
What this analysis fails to take into account is that the limits for subsidized and unsubsidized federal Stafford Loans hav not changed in several years. This is why it appears that federal student loan borrowing has not increased since 2012! This is why graduate student loan figures released by universities is so deceptive. Ever notice that nearly all colleges say that the average undergraduate who took student loans borrowed around $25,000 through graduation? That is because this is the limit. But what they don’t report is how much the average parent borrows to send their children to college. See:
How Much Can I Borrow?
Historical Loan Limits
Growing Student Debt Burden for Parents “Roughly 3.6 million parents had taken out $96 billion in outstanding loans under the federal Parent PLUS program as of late last year, the study from Trellis Research said. Parent PLUS loans now account for about a quarter of total federal lending for undergraduates, a share that grew from 14 percent in 2012-13.
“An increasing portion of parents also are struggling to pay off these loans. For example, the five-year default rate grew to 11 percent for parents who took out PLUS loans in 2009, up from 7 percent for the 1999 cohort, research has shown.”
The elephant in the room here is that this was all obviously part of the plan. If you look at the structure of the current student loan regime it is clearly a backdoor fiscal stimulus. Those hundreds of billions of dollars all went somewhere. Whether to construction of new buildings, rent or admin salaries. Students primarily being poor have a very high marginal propensity to consume so it all gets spent within months. This is part of the reason you see nice towns in rural america that are largely based around a university. The idea that the FedGov loans its citizens money at a rate higher than the rate they pay to borrow it is financial quackery considering that the FedGov’s ability to issue debt is backed by the same citizenry whose taxes guarantee that debt’s repayment. It’d be like giving your kid a high interest loan that they pay back with their allowance. A grift plain and simple.
It shows that we can afford to provide free college for our students. We are already paying for it! Just cancel the indebtedness.
We all know about tranches for securitized debt products, such as CDOs, which pools together a collection of cash flow-generating assets, for example mortgages, bonds, and loans or another type such as MBS.. An MBS is made of multiple mortgage pools that have a wide variety of loans, from safe loans with lower interest rates to risky loans with higher rates. What made 2007/8 fun was we all thought they were safe as they were approved by S&P and insured with CDSs. Lot of foreign money came to the US looking for safe haven such as Treasuries, Greenspan said “no” to rate increases, and the investors turn to the next best and supposedly safe thing or mortgage backed securities. You know the rest of the story and your author is the expert. I have not looked at these since 2009 so if I get something wrong, sorry!
My point here is: Wall Street is doing Student Loan Asset-Backed Securities or SLABs is the acronym. They are not quite as risky as tranched MBS; but they still have risk. They are bundling student loans.
Mike VanErdewyk, the founder and CEO of ReliaMax, a private student loan solutions provider; “We have a billion dollars more in demand than we have supply right now. I’ve got investors who want to buy private student loans and I don’t have enough loans to sell them, which is kind of the opposite of a lot of business models out there.”
To me and Yves and others may have a different opinion, Wall Street is gambling on a product safe from bankruptcy but still a risky venture. Everyone thought MBS securities were safe because they are mortgages, right? To me, I think the market is unstable. You have similar crooks out there pushing students into signing their names to contracts with no way out just like Wells Fargo, Countrywide, etc. did. It caught up with many of them and many people were hurt. The bubble is big at $1.6 trillion and ripe for a collapse in my opinion.
Some reading: https://www.thestreet.com/personal-finance/should-you-invest-in-student-loan-asset-backed-securities-14142296
Yves I am done. I hope I did not distract from your post too much.
There’s a good news story here in Georgia with the state working hard to keep hard working/achieving students in state through the Hope and Zell Miller scholarships. Something like 98% of Georgia University system students receive these scholarships which are merit based and cover all or nearly all of tuition. It’s not a perfect program but it certainly runs counter to the narrative we are all too familiar with and so it should be pointed out.
I would like to see some data about the income levels of those who are most likely to take on student loan debt. I suspect that it burdens the middle class most of all. The poor will qualify for grants; the rich don’t need loans.
The middle class gets screwed over and over again by MEANS TESTING. Fill out your FAFSA, Dad, and let’s see all of the financial aid you qualify for…….No grants for you!—you earn too much money. But never fear—the federal government to the rescue!!—you qualify for STUDENT LOANS and PARENT LOANS. WooHoo!! The American Dream is right around the corner. Take your shot, and maybe your kid will move from the Middle Class to the UPPER MIDDLE CLASS! (Disclaimer: Results may vary; a college degree is no guarantee of success. What do you think this is, the post-war years?)