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PostA Recent College Grad on Student Debt (from Noah Rich) (John Eipper, USA, 09/25/19 2:37 am)
Noah Rich writes:
This is in response to Eugenio Battaglia (September 23).
The severity of the US student loan debt crisis almost cannot be overstated. Eugenio said he hopes the reports are wrong, and I can assure you they are most definitely not.
The figure of $1.6 trillion in debt is correct. For reference, that is a greater total than the American credit card or auto debt. This was largely caused by a massive spike in university tuition prices. In the 10 years leading up to 2018, outstanding student loan debt in the United States tripled. So from a number of about $500 billion in student loan debt to over $1.5 trillion in a decade.
The picture moving forward is quite grim, too. There are estimates that nearly 40% of borrowers will default on their student debt by 2023. Within 4 years of leaving school (note: not only graduating), about 25% of borrowers default on their student loans. This ends up being around 1 million people every year in the United States.
And here is an interesting fact. Defaulters are less likely than non-defaulters to have other kinds of debt that require a risk assessment, like credit cards, auto loans, mortgages, etc. They are however more likely to have utilities fall into collections, though. To me, this paints a picture of people who are trying to be as financially savvy as possible, and who are not inclined to be financially irresponsible in other regards. I could be wrong, but that is my speculation.
I am not an economist, nor do I know much about macroeconomics, but I cannot imagine that a debt crisis this large is benefiting the US economy, especially when so much of it is falling into default. It could be less of a problem if not so many were falling into default. Certainly, some of the Democratic presidential candidates think this student loan debt situation is not sustainable for the US economy, although it is yet to be seen how workable their plans are to solve it.
As a final note: A lot of folks who are stuck paying back excessive loans, such as myself, feel tricked in a way. I cannot speak for everyone who has left university in the past 10 years and who will for the next decade, but when I was growing up, attending and graduating college was an idea which was shoved down our throats since we have practically come out of the womb. For a decade and a half, all I heard was how if I didn't go to college I would never get a good job with a living wage. Even though when I was 17 and getting ready to apply to for college, I had some concept of personal finances, I don't think many teens, if any, that age can truly grasp the idea of $50,000 in debt. This, coming from a kid who was paying his own mobile phone bill and bought his own used car as a teenager.
So, I think many people around my age accepted way more debt than we were ever ready to, because from what we had been taught it was worth it and virtually necessary. Luckily, nowadays, trade schools, technical programs, etc. seem to be coming back into appreciation, but I digress.
JE comments: The last time Noah Rich (a recent grad from Ohio University) checked in with WAIS he was in Japan. Are you back in the US now, Noah? Still in Japan? We'd love a personal update.
And thank you for this front-line perspective on student debt. One twist I've never heard before: student loan defaulters are less likely to be in arrears on auto loans and mortgages. Of course, you cannot repossess an education. This, as Noah observes, is a practical financial decision on the personal level.
Francisco Ramírez (next) gives us the perspective from Stanford.