Student Loan Debt: Yes, It Is a CRISIS!

Some recent reports on student loan debt have soft pedaled michiganSTUDENTloans

the notion that our trillion plus dollar student loan debt is

not a crisis.

These reports do that by discussing the healthy part of the student loan debt.

The amount owed by higher income people, and so on.

The Brookings Institute is on board with a new student loan debt study, showing:

About a quarter of the increase in total student debt is the result of more students going to college and graduate school, the study found, using the Survey of Consumer Finances administered by the Federal Reserve Board.  

Well, great, what about the other three quarters of student loan debt?

The upshot of those dual trends is that median monthly debt payments as a share of monthly income for people with student loans ranged between 3 and 4 percent every year between 1992 and 2010.

Except that there are way more debtors now, many of whom cannot afford even the 3 and 4 percent payment.

And,  $100,000 in debt—just 2 percent of borrowers had that much in loans.  

Two percent, not much, right?

Hello!  There are 34 million of us with student loan debt.

According to the study, for people ages 20 to 40 with some college but no bachelor’s degree, the incidence of debt rose to 41 percent, from 11 percent, between 2010 and 1989. And since household income for this group actually fell between 1991 and 2012, in 2012 dollars, that added debt burden is especially heavy.  (all quotes form Kelly Holland story on CNBC)

Like I said.

Solutions?

Got to force the colleges to get skin in the game.

Alex J. Pollack has a more accurate view of student loan debt than the Brookings Institution.

In a recent paper*, the Federal Reserve Bank of New York observes that “the measured delinquency rate on student debt is the highest of any consumer debt product.” This measured rate of student loans 90 days or more past due is 17%–indeed very high delinquency. But, the New York Fed goes on to say, the real or “effective delinquency rate,” which they calculate by comparing 90 day past dues specifically to those student loans where borrowers are being asked to repay, is over 30%!

That 30% is the same as the peak serious delinquency rate of subprime mortgage loans in 2009.

His way of getting college skin in the game?

Each college should be financially on the hook for at least 20% of the losses its own defaulting students cause. This would certainly improve what is now a complete mismatch in incentives, and thus improve educational, as well as financial, performance.

What do I think?

That is not enough; the colleges be on the hook for more.

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