(Source: New York Fed Consumer Credit Panel/Equifax)
This is 2018, and about three years ago, we were hearing some pretty dire stories in the media about the student loan crisis. One of them from The Motley Fool (http://www.fool.com) is titled, “The Student Loan Crisis is Here, and It’s Pretty Scary” (http://www.fool.com/investing/general/2014/01/19/the-student-loan-crisis-is-here-and-its-pretty-sca.aspx). The story was published in January 2014. In Fall 2015, The Huffington Post published “There is a Student Loan Crisis, and It’s Not Hard to Understand (http://www.huffingtonpost.com/michael-restiano/there-is-a-student-loan-c_b_8148470.html).
That means that in 20 months, we progressed from “There is a student loan crisis” to “There is a student loan crisis.” This is 2018, and the crisis has become worse.
In the above photo that shows trending lines over time, at the right, we see the most recent 90-day delinquency rates (from 2017). Student Loans are at the top, followed by credit card debt, and then mortgages.
The numbers tell the story, in that the average graduate has about $30,000 in student loan debt. $30,000 for 10 years at 8.6% per year is about $345 a month. That might not sound too bad, but remember, that number is an average. There are some students that may have student loan debt as high as $200,000.
The intriguing fact, however, is finding out “when” this became an issue. News of the crisis started about 7 years ago, around 2011. A couple of years before that, in 2009, President Barack Obama called for the end to the FFEL (Federal Family Education Loan) Program, calling it a waste of taxpayer money. No new loans were made from the program after June 30, 2010. That means the 2010-2011 school year was the first year that a new loan program was in place, and the one that had loan originators competing to keep loan rates low was gone.
Also in 2011, students graduating from college were the first children of parents that belonged to Generation X (the ME Generation) do so. The economy was still fighting to recover from the stock market crash of 2008, so jobs were not as plentiful as they once were, and students were expected to repay their debt. To whom does that burden fall to? In many cases, the parents, because they had to sign or co-sign for loans. These were quite possibly the same parents that may have said that their child didn’t act up in class when they were in elementary and high school, and disagreed with disciplinary actions that their child may have been subjected to.
As for that loan payment of $345, that may be an expense that a parent didn’t think about dealing with after paying for four years of college for their child (because you know the child didn’t pay $15,000 a year for the past four years), and now, not only do the parents have loans to pay for those amounts, as well as potentially more children in college, how are they expected to pay this extra amount when their student is hired at an entry-level job at $30,000 a year?
What happened before that time? Perhaps more educated decisions were made by Baby Boomer parents, who said “You can go anywhere for a liberal arts degree. You don’t have to go to the school that costs $40,000 a year, especially when you won’t be making that when you graduate.”
As for that child with $200,000 in student loan debt interviewed a couple of years ago on NPR’s “All Things Considered,” $200,000 over 10 years at 6.8% is over $2,300 a month. No longer may the mortgage be the highest monthly payment a person will be making.