Student Loan Crises Must Be Addressed Before It Gets Much Worse

While Wall Street and U.S. President Donald Trump tout news of a booming stock market and low unemployment, college students may be quick to roll their eyes. The improved economy has yet to mean higher wages for graduates already struggling to pay down massive debt, let alone ease the minds of students staring down the barrel of six-digit loan obligations yet to come.

Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the cost of tuition and borrowing continue to rise, the result is a widening default crisis that even Fed Chairman Jerome Powell labeled as a cause for concern.

Student loans have seen almost 157 percent in cumulative growth over the last 11 years. By comparison, auto loan debt has grown 52 percent while mortgage and credit card debt actually fell by about 1 percent, according to a Bloomberg Global Data analysis of federal loans. Fortune Magazine reports that, all told, there’s a whopping $1.4 trillion in federal student loans out there (through the second quarter of 2018), marking the second largest household debt segment in the country, after mortgages. And the number keeps growing.

Further, Student loans are being issued at unprecedented rates as more American students pursue higher education. But the cost of tuition at both private and public institutions is touching all-time highs and interest rates on student loans are rising. Students are spending more time working instead of studying. Experts and analysts worry that the next generation of graduates could default on their loans at even higher rates than in the immediate wake of the financial crisis.

Federal student loan debt currently has the highest 90+ day delinquency rate of all household debt. More than 1 in 10 borrowers is at least 90 days delinquent, while mortgages and auto-loans have a 1.1 percent and 4 percent delinquency rate, respectively, according to Bloomberg Global Data. While mortgages and auto-loans have seen an overall decrease in delinquencies since 2010, student loan delinquency rates remain within a percentage point of their all-time high in 2012.

Delinquencies escalated in the wake of the Great Recession as for-profit colleges pitched themselves as an end-run around low-paying jobs, but many of those degrees ultimately proved useless, leaving graduates with debt they couldn’t pay back.

Students attending for-profit universities and community colleges represented almost half of all borrowers leaving school and beginning to repay loans in 2011. They also accounted for 70 percent of all defaults. As a result, delinquencies skyrocketed in the 2011-2012 academic year, reaching 11.73 percent.

If these numbers continue to fall on deaf ears, we will lose an entire generation of eligible homebuyers and consumers who are needed to drive our economy, no less achieve the American Dream (if there is still one left..)