Student Loan Debt $1 Trillion and Could Impact Economy

Student Loan Debt

Delinquencies on mortgages and credit cards are declining, but the number of student loans overdue continues to grow. The $1 trillion now owed by American students is rising and the student loan debt could have a long term impact on the economy.

American students and graduates owe $1.08 trillion, a 10 percent increase over the previous year. Overall student loan debt grew 300 percent in the last decade compared with overall debt, which only grew 43 percent, according to figures from the Federal Reserve Bank  of New York.

Seven out of 10 graduates in the class of 2012 had student loans, according to a study by the Institute for College Access & Success, with an average amount owed of $29,400. The negative employment picture that year made the prospects for repayment dim.

Overall, delinquencies on student loans are growing dramatically. At the end of 2013, 11.5 percent were at least 90 days late on payments. The number would actually be much higher but half of all student loans are not currently in repayment because of deferments and forbearances that put off payments while still in school.

Why are the debts and delinquencies continuing to rise? one theory is that the cost of higher education keeps rising and incomes are not keeping pace. In the 2010-2011 academic year, the annual cost of a degree on average at all schools (two- and four-year, public and private) rose to $18,497, a 70 percent increase over 10 years prior, according to TIME. However, incomes have barely been keeping pace with inflation, leaving more families scrambling to pay for college.

Before the recession, families often financed college with home equity loans or by refinancing their mortgage. During the stock market boon, investments helped pay for college too. Since the stock and housing market declines, more students have been forced to use loans to pay tuition bills, which has resulted in the $1 trillion student loan debt and its impact on the economy.

Unfortunately, one major criteria used in granting loans does not apply for student loans – a realistic assessment of whether or not the loan can be repaid. Financial advisors often recommend that total student debt accumulated not exceed the expected annual salary upon graduation, a practice widely ignored. Federal student loans are made directly by the colleges, using government money, on an annual basis without consideration to how much overall has been borrowed. There are annual limits on undergraduate amounts, but not cumulative ones. However, graduate students can borrow as much as they want, which results in some law, medical and dental school graduates owing $100,000 and often significantly more.

That $1 trillion in student loan debt could have a huge impact on the economy and be felt for years. Those with hefty loans are crippled in starting their careers. Some may need to intentionally default on their student loans to be able to open the dental or medical practice that is needed to pay for them. Their debt load traps students. The economics and the weight of the debt, which can take 15 to 20 years to repay, impact future decisions like where to live, buying a house, discretionary money for daily living, and saving for retirement. The impact the student debt has on consumer purchasing is not known. But the drag on the economy will clearly be felt for decades either in loan defaults or decreased spending.

By Dyanne Weiss


New York Times
USA Today

One Response to "Student Loan Debt $1 Trillion and Could Impact Economy"

  1. Steve   March 2, 2014 at 3:09 pm

    So they’re gonna get a free ride and future students don’t??????


Leave a Reply

Your email address will not be published.