t is easier for Americans to pay off mortgages and car loans than student loan debt. That is the frightening conclusion from a new survey made by researchers at the Federal Reserve Bank of New York.
The Fed’s analysts discovered that the number of people delinquent in almost every kind of debt was shrinking even as the number of Americans more than 90 days behind on student loans was growing. Americans are paying off their mortgages, credit card debt, and auto loans but not student loans.
That’s frightening because Americans now owe $1.2 trillion in student loan debt, which cannot be discharged by bankruptcy. They have to pay off that debt or else.
Fed Indicates Student Loan Debt Is Spiraling out of Control
The Fed’s data also shows that student loan debt is a ticking time bomb that could have catastrophic effects upon our economy. Some highlights of the Fed’s data reported in The Washington Post include:
- The number of people taking out student loans increased by 92% between 2004 and 2014.
- The average student loan balance increased by 74% in that period.
- Around 1.8 million Americans owe more than $100,000 in student loan debt.
- The percentage of Americans delinquent on their student loan payments now exceeds the percentage of Americans behind on credit card, mortgage, auto loans, and home equity loans.
- Around 11.3% of the student loan borrowers were at least 90 days overdue in the last quarter of 2014. The figure was up .2% from the third quarter of 2014.
- The average student loan debt in the United States is now $14,000.
The situation is so devastating because student loan debt is the one kind of financing that cannot be discharged in bankruptcy. As I’ve noted elsewhere, the student loan debt crisis could easily be defused if Congress were to simply let people discharge student loan debt in bankruptcy.
Student loan debt is the worst kind of debt because it does not go away. A person can simply walk away from a house that’s underwater. He or she might have to spend a few years with a bad credit score, but he or she can escape it. It is basically the same with a business or a car loan. Not so with student loan debt; you have to pay it off or else it can wreck your life. If you don’t have the money, there’s little you can do.
Student Loan Debt Threatens Economic Growth
Student loans are now a major drag on our economy and a serious impediment to economic growth. The $1.2 trillion needed to pay them off is money that won’t be spent at retail stores or used to buy real estate or manufactured goods. Instead it goes to the financial industry and, worse, the education-industrial complex. The money won’t grow the economy nor will it improve the lives of average Americans.
The Americans with student debt have less money with which to buy houses and industrial goods like cars. They will have a harder time borrowing money, starting businesses, qualifying for mortgages, buying houses, buying cars, saving, saving for retirement, investing, and taking the other steps necessary for economic advancement.
This hurts everybody because spending will be lower at retailers, government will take in less taxes, and companies will have less to reinvest for growth. Instead of being used for productive purposes, untold billions of dollars will simply disappear into the black hole known as student loan debt.
The high level of student debt makes income inequality worse because it makes it harder for people to escape poverty. Many college graduates that expected a middle class income now face a life of debt.
One result of this will be that some people who could have been productive citizens will simply go off the grid and drop out of society. They might become homeless, assume a false identity, leave the country, or adopt an all-cash working poor lifestyle to escape student loan debt collection efforts. No matter how they drop out, society will be hurt because there will be fewer productive citizens.
The human cost of student loans is horrendous. Millions of people are being destroyed by them, and millions more are in danger.
Student Loan Crisis Could Be Worse Than Subprime Mortgages
Congress needs to take some serious action on this issue and fast. One solution would be to give a person the legal right to discharge student loans in bankruptcy after a specific number of years; for example, five or seven years. That would prevent people from going to college, taking out a pile of loans, and simply heading to bankruptcy court on graduation day.
If our leaders don’t act on student loans and fast, student loans could become a worse crisis than the mortgage meltdown of 2007–2008. Student loans would be a worse crisis than mortgages because they are a slow-moving crisis that could drag on for decades.
One has to wonder what the historians of the future will say about us. We’ve turned education, which is supposed to be a ticket to the good life, into a destroyer of lives and dreams. Student loan debt is now the most insidious and destructive form of obligation in America. It’s worse than mortgages and possibly even a greater threat to economic stability and individual futures than subprime mortgages were.