The Student Debt Crisis! Big Educational Loans

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Will You Ever Get Out of Educational Debt?

College student loans are growing daily and have now surpassed credit card debt by $600 billion.

Watching the movie The Big Short  made many viewers wonder…

  • Why didn’t more people know about what was going on?
  • Are there other lingering issues in our money based society that we should be concerned about?
  • College debt is going to divide the “have not’s” even farther from the “have’s”.
  • Students strapped with the weight of five figure student loans to repay as they embark into the adult world have it rough.

Our national debt is in excess of $20,000,000,000,000 (that’s $20 trillion!) and growing. Something to be very concerned about, but something that is less reported is the $1.5 trillion dollars in student loan debt.  In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year.

(A Look at the Shocking Student Loan Debt Statistics for 2018).

Approximately 44 million students share this responsibility and this number like the debt amount is growing rapidly.  The government has the ability to print money to pay off the national debt. While people obviously cannot (the government solution is to make the debt evaporate into thin air), the impact of student debt should concern everybody.

It’s hard to believe, but nationwide there is more money owed for student loans than auto loans or credit cards!

One reason for the large student loans is that college costs are rising and the government is making loans more accessible than ever. From 2001 to 2011, tuition and fees at state schools soared 72% and the pace has continued, with no end in site.  In my opinion, the biggest reason college costs have soared is the availability of credit to these same borrowers.  If you had to be credit worthy to receive a college loan or your parents were on the hook for the money and the loan was underwritten the amount being loaned for college would shrink dramatically.  If loans were not so available, colleges couldn’t increase tuition costs, because few people could afford to pay.

Imagine what would happen to enrollments at four year colleges if student loans were capped at say $10,000.  Colleges would either be forced to lower their prices dramatically or face huge declines in enrollment.  The opposite has happened, student loan debt is exploding. And colleges across America keep raising prices and building more, new, expensive buildings.  Look around and the absolutely amazing new dormitories and school buildings on almost every campus you visit.  When you see these beautiful new buildings, remember it’s the sky high tuition rates and student loans that have paid for all these.  

THE FACT THAT ANYONE SEEMINGLY CAN AND WILL BORROW FOR COLLEGE. ALLOWS COLLEGES TO UP THEIR PRICES KNOWING THAT PEOPLE WILL GLADLY BORROW FOR TODAY WHAT THEY CAN PAY BACK FOR OVER TIME LATER.

I compare this a little bit to the mortgage frenzy. When people were allowed to buy homes with no money down. The appraisal would come in for what ever the lender needed it to be, and income verification was almost an after thought.  Poor lending created the housing bubble and we know how that ended…

Over the past 10 years, the amount of student loan debt has nearly tripled. While defaults are at a two-decade high. Nearly 15 percent of borrowers defaulting within three years.  As an illustration, some 600,000 borrowers who started paying federal student loans in 2010 had defaulted two years later.

They default because they can’t afford the loan payments. Many take student loans, but never finish school while other graduates are under employed or simple do not make enough money to pay their bills. Large loan student payments make for a tougher road into their adult life.  This is why I say student loans will cause a greater societal divide between those that had college paid for by their wealthy parents and those that took massive student loans. I understand that paying your own way through college potentially has many benefits as well from a true “grit” standpoint. But, there is no argument that paying off a student loan is a hurdle for those that have them.

The chart below visualizes the differences among all 23 cities we analyzed. Toggle through the metrics to see each city’s average borrower monthly payment, average monthly housing payment, average annual income, and average student loan and housing costs as a percentage of income.

Interesting solution by President Obama in 2014 – You pay only a fraction of your student loan back and then it’s forgiven entirely. Intentions were terrific, but many of the kids taking loans can’t afford to pay them back. So it had the opposite impact.

Who pays for the money that was borrowed and not repaid?

Currently, this plan caps monthly payments at 10 percent of a borrower’s disposable income and forgives the balance after 20 years of payments.  If you are a government employee you only need to make the payments for 10 years and then the loan is forgiven. This is the part that befuddles me. Imagine asking/requiring banks to forgive mortgage loan balances after 20 years! 

 Based on some of the calculations I have seen. Roughly 1/3 of student debt under this program debt, could be forgiven after 20 years of making the 10% of disposable income payment.  I do not understand how the lender (our U.S. Government) can simply take out an eraser and forgive the remaining debt.  Obviously a bank would never be able to afford to do that for all its loans.  How will this impact taxpayers as we somehow must get stuck with those debts?

What are your thoughts????

You’re Not Alone – Who Can Afford College Today? College Calculator

 

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