Even as college tuition increases slow down, we still see student debt growing, reaching new highs consistently every year. As we cross the $1.4 trillion mark, we stop to ponder how long this debt bonanza can last.
As college graduates enter the real world more indebted than ever before, there are suspicions that this overindulgence in student debt cannot continue forever.
The sobering reality is that eventually, someone, somewhere is going to have to pay back this eye-popping amount of debt. Whether it’s consumers or the government who ponies up the cash to address these obligations, the debt is very real and poses a danger to our entire system of higher education and our economic way of life.
That escalated quickly
Just how fast student debt has risen is shocking. Total student debt is almost three times as large as it was in 2006. Student loan debt eclipsed credit card debt in 2010 and auto debt in 2011. It is now the largest form of consumer debt besides mortgages.
We blew past the trillion-dollar mark in outstanding student loans in 2012 and have already added nearly $400 billion, to that number since.
These numbers are so large that it’s often hard to grasp their enormity. Consider that $400 billion is approximately the yearly GDP of Thailand, and that we’ve accrued that much student debt in only five years.
A little less than half of the total student debt has been used to finance graduate and professional degrees. Although many of these folks eventually will earn enough money to make a dent in their loans, there are also an alarming amount of people who are treading water.
This is especially the case for those who financed an education that didn’t help them find meaningful and well-paying work and are now stuck in a debt spiral. Millions have so much debt that they can’t keep up with their interest payments, nevermind paying off their principal balance. Others are just giving up entirely, as a little more than 11 percent of borrowers nationally are defaulting on their loans entirely.
Because student debt is nearly impossible to discharge in bankruptcy, defaulting on student loans triggers a domino effect that ruins your credit and can lead to wage or Social Security garnishment.
Is there a healthy level of student debt?
A college education can be a smart investment if it leads to a prosperous career. But, if you have to dedicate more than 10 percent of your gross income over a 10-year term, than you have what many financial experts call “excessive student loan debt.”
Far too many people fit this description today. Fortunately, the government has introduced loan repayment programs that cap contributions to 10 or 15 percent of your income along with public service loan forgiveness. Unfortunately, while these generous terms are good news for consumers, the government will likely be on the hook for hundreds of billions of dollars in forgiven student loans.
Takeaway: We’re shooting ourselves in the foot
As millions start their lives with obscene levels of student debt, they tend to delay adulthood and all of the major purchases that go along with coming of age. The cumulative impact of millions of millennials delaying marriage, homeownership and automobile purchases is a weapon of mass economic destruction.
It doesn’t take a rocket scientist to figure out why our economy is growing more slowly than it has it the past. It’s likely that student debt is one of the culprits behind our economic slowdown.
Eventually, the student loan bubble will pop, and institutions of higher education will be put in a tough spot. Don’t cry too hard when these colleges and universities fall on hard times. After all, it was their greed that fleeced several generations of students and ultimately doomed our country to reduced economic prospects.