By Robert Spendlove/Zions Bank’s Economic and Public Policy Officer
Robert Spendlove
Household debt is on the rise in America. According to the Federal Reserve Bank of New York, household debt has risen steadily for 11 consecutive quarters. Total household debt is now approaching $13 trillion, and has surpassed the previous peak of $12.68 trillion in 2008. The largest, and quickest rising household debt is for student loans. The increasing amount of student loan debt is alarming, especially since student debt delinquency is also rising.
How Did We Get Here?
As the U.S. transitions away from a manufacturing and goods-based economy to a service and technology-based one, the need for higher education has increased. It has become more important for students to get post-secondary education to remain competitive in the modern workforce.
However, as demand for higher education has increased, so have the costs. In 1973, the average one-year tuition at a private university was just under $10,000 and an in-state public university averaged around $2,000 in today’s dollars. The average one-year tuition for a private college is now over $33,000 while it is just under $10,000 for an in-state student attending a public college.
Increasing Student Loan Debt and Defaults
The dramatic increase in higher education costs has resulted in a steep rise in student borrowing. The average college student now owes more than $37,000 for student loans. These borrowers should expect to pay around $450 per month on a 10-year loan. And many graduates face daunting loan balances of over $100,000, with monthly payments of more than $1,000. Luckily, the U.S. job market is strong right now and with starting wages for college graduates averaging just under $50,000 per year, borrowers should be able to handle these payments.
However, what if recent graduates are not able to find jobs that pay well enough to cover the cost of their student loans? Or, even worse, what if a student drops out of college? He or she must still repay the loans, even without the benefit of a diploma. And often the burden of paying these outstanding debts falls to the parents of those in debt.
Idaho is not immune from these student debt struggles. According to The Institute for College Access and Success, college students in the Gem State have an average student debt load of $26,091, which ranks 30th in the country. However, Idaho has the second highest percent of students who incur debt to finance a college education, with 72 percent having at least some education-related debt.
As student loan debt has doubled in the past decade to $1.3 trillion, the default rate on student loans has also increased. Today, more than one in 10 borrowers are at least 90 days delinquent on their student debt. The delinquency rate for student loans is now much larger than for other forms of debt, such as mortgages, autos and credit cards. And this high debt is dampening home ownership rates as borrowers struggle to manage their high debt loads.
The Impending Student Loan Crisis
Compared to other forms of debt, it is much more difficult to erase student loans in bankruptcy. They can hang over the heads of borrowers for years, or even decades. Student loan borrowers have said that the weight of their loans delayed other life events, such as getting married or having children. Others have said that their debt impacted employment plans, causing them to work in jobs outside their field, work extra hours or work more than one job. Many have said that their undergraduate education was not worth the financial cost.
Just as with the housing crisis of 2009, if borrowers become unable to keep up with their mounting student debt, the overall health of the economy could be severely affected. This is especially true since borrowers will not be able to easily rid themselves of the debt they are incurring. And if they are able to dismiss the debt through bankruptcy or forgiveness programs, the American people will be left holding the bag for this debt.
Addressing the Crisis
It is imperative for borrowers, universities and policy makers to address the impending student loan crisis before it grows out of control. At the individual level, students need to be more responsible about the debt they incur and not borrow more than is necessary. Colleges and universities must be more proactive in helping students understand the debt load and future cost to pay off loans after graduation.
Policymakers need to increase awareness about the seriousness of the crisis. Colleges must be given better tools to limit student loan debt, including allowing them to identify students with excessive debt and proactively reach out to them with help. It will take a concerted effort at all levels to address the crisis. Meanwhile, every day the problem becomes worse.
Additional economic insights, including state and national economic trends highlighting indicators such as employment, demographics, housing, and more can be found online at www.zionsbank.com/economy.
Robert Spendlove is Economic and Public Policy Officer for Zions Bank. To contact Robert, email Robert.Spendlove@zionsbank.com.
