A trillion dollars. That’s a massive number. It’s larger than the gross domestic product of 175 countries. No company in the Fortune 500 produces even half that much in annual revenue. The franchises in all four major American pro sports are worth barely 10 percent of a trillion dollars, combined. And it’s also how much America’s college graduates owe on their student loans.
To say that student loan debt is a crisis is an understatement. According to the most recent figures from the Project on Student Debt, seven out of ten college graduates leave school with loan debt. A decade ago, their average debt level was around $17,000 -- but, as of last year, that figure had climbed close to $30,000, directly impacting 37 million student borrowers and creating a trillion-dollar problem that affects just about everyone in the nation.
Student Debt Hits Middle Class Students Hard
Overall, we know that students from low-income backgrounds still face the greatest struggle when it comes to earning college degrees. Unstable home lives, lower-quality high schools and other frequent corollaries of low-income neighborhoods present plenty of obstacles even before loan debt becomes an issue.
For students from middle-class backgrounds, the road to a degree seems easier. Their families often have money saved; their schools and support systems tend to prepare them well for the next step. Nevertheless, we’ve learned in the past year that middle-class students actually shoulder more student loan debt than anyone after graduating. According to Dartmouth sociology professor Jason Houle’s study,
“‘Children from middle-income families make too much money to qualify for student aid packages, but they do not have the financial means to cover the costs of college’ … The study found that students from families earning between $40,000 to $59,000 per year racked up 60 percent more debt than lower-income students and 280 percent more than their peers whose families earned between $100,000 and $149,000 per year. A similar trend held for more affluent middle-income families earning up to $99,000 annually.”
Loan Debt Is an Economic Drag
When graduates looking for their first post-college job are already $30,000 in debt, the negative effect on the economy is considerable.
Despite their qualifications, grads often have to settle for lower-paying, lower-skill jobs just so they can start paying their loan bills right away. As a result, graduates in debt often miss out on the benefits that come with a degree. ProgressNow found that students with outstanding loan payments were 36 percent less likely to purchase a house, and other research indicates that “Those with student loan debt also are less likely to have taken out car loans. They have worse credit scores. They appear to be more likely to be living with their parents.”
Defaults and delinquencies are also more common with student loan debt than just about any other kind. While credit card default rates have dropped under 10 percent thanks to stricter borrowing guidelines, the rate of student loans in “serious delinquency” has gone up to 11.5 percent. What’s worse, according to Rohit Chopra of the Consumer Financial Protection Bureau, is that many of these borrowers aren’t even graduating. “This [statistic] suggests that borrowers who default are overwhelmingly noncompleters … These borrowers take on some debt but do not benefit from the wage increase associated with a degree.”
Last but not least, the prospect of such overwhelming debt is making an increasing number of students, especially low-income students, think twice about attending college at all -- a decision that will compound the already-impending shortage of educated employees facing the U.S. workforce.
What Can We Do?
In the wake of the Great Recession, both the public and private sectors recognize the scope of the student loan debt crisis. A wide variety of policy solutions are under discussion; federal law has required colleges to provide deeper and more transparent information about the cost of attendance, the likelihood of loan debt and the career prospects of graduates, and that is an important step.
It’s more crucial than ever to ensure that families are aware of all of their funding options. It’s also vitally important to fund grants, scholarships and other forms of aid that don’t require repayment. Last year, for the first time, scholarships and grants paid for more than 30 percent of the average college student’s tuition bill -- and the more we can all give back in scholarships, the fewer students will face a crisis of debt.