In February 2019, LendingTree published data to understand the 1.43 Trillion USD of outstanding student loan debt.
The table below shows what portion of the debt is in repayment, deferment, forbearance, default, and in their grace period. The grace period is usually the period that a new graduate can conduct a job search before being required to make payments on their student loan.
What Makes Student Loan Debt a Crisis?
- Student loans are 11% of household debt. Some worry that student loans could lead to a financial collapse like the ’08-’09 housing crisis. However, long-term delinquencies are relatively low and student loan debt is nowhere near mortgage levels in volume.
- According to Betsy DeVos, Universities are incentivized to overcharge on tuition with Government backed borrowing.
- Student loans contributed to lower rates of homeownership. “Research finds that a $1,000 increase in student loan debt lowers the homeownership rate by about 1.5 percentage points equivalent to an average delay of 2.5 months in attaining homeownership.”
- Student loan debt is a bubble? A report finds that a bachelor’s degree is worth $2.8 million over a lifetime, enough to pay back initial loan costs. The asset must be underwater for a financial bubble to occur. The value of a degree is currently not underwater.
- The American Government will lose Billions on Federal Student Loans. Estimates in 2016 suggest that the American Government will lose $170 Billion in bad debt.
- Psychological stress associated with student debt increases risk for eating disorders, alcoholism, and anxiety.
Worsening Trend, But Not at Crisis Levels
Student loans have significant negative consequences including a cost to the Federal Government and psychological effects on student borrowers. However, student loan debt is not at crisis levels compared to the sub-prime mortgage financial crash of ’08 and ’09. The $170 Billion in bad debt could decrease with improvements in the economy and increased wage growth.