Student Loans Swallowing America
July 16, 2012 by Sam Rolley
For years, young people in America have been told that if they fail to get a good college education, they will miss out on many of the opportunities given to their more-educated peers. There’s another thing they may be missing out on: about $1 trillion in Federal student loan debt.
A report released last week by Barclays indicates that the official estimates of the future burden of student loan debt have been understated to the tune of at least $225 billion. The Federal Reserve estimated the total to be at least $870 billion as of 2011.
Here are some points Barclays makes about the debt, referencing the Federal Reserve and the National Center for Education Statistics:
- The growth of federal student loans outstanding in the past decade ($583 billion) is larger than the size of the government’s TARP bailout package ($431 billion).
- Borrowers who graduated had a default rate of 3.7 percent in 2009, while those who dropped out had a default rate of 16.8 percent, and … a larger portion of the student loan debt is falling on those who will not receive the financial benefits of earning a degree.
- Barely half of all borrowers were making payments as of the third quarter of 2011; 47 percent were either still in school or in deferral, forbearance or grace periods.
- Given the weak labor market and increasing dropout rates, there is little reason to think that … future delinquency rates will be lower than the current national average (14 percent for all borrowers).
- Currently, 15.5 percent of the outstanding student loan balance is held by borrowers 50 and older, and 4.2 percent is held by those 60 and older; and these age cohorts hold an even larger share (16.9 percent and 4.8 percent respectively) of the total past-due student loan balance. The average debt burden for borrowers over age 60 is $18,250.
- The median education debt belonging to households in which the head of the household is retired increased by 62 percent between 2007 and 2009.
- When combined with forecast growth in issuance, we estimate that the government will lose around $65 [billion] on student loans in the coming decade from subsidy rate re-estimates alone.
- Between now and 2020, we think that IBR [the new income-based repayment programs] will cost the government a total of $190 [billion, due to write-offs].
By the looks of these statistics, it may be a ripe time for American students to better weigh the risks of incurring large sums of debt with the promise of better future employment to offset the investment cost.