The Student Loan Crisis and Why You Should Care.

Author:Larkin, Larry
 
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THE CRISIS

Our next generation of leaders is facing an unprecedented crisis that is not only affecting their financial future, but our nation's economy as well: college debt. In the last 10 years, the cost of attending college has risen 42% for private institutions and 19% for public institutions. For the 2016-2017 academic year, the cost of tuition, room and board at a private university averaged $45,370 and is increasing at a rate of 4.4% a year (Figure 1). (1)

This rate of increase has far outpaced the growth rate of household income and financial aid. As a result, students--44 million of them--have had to take on an overwhelming amount of debt to fill the gap. The average student of the Class of 2016 graduated with a debt of $37,172--and that does not include any college loans the student's parents may have taken out. Student loan debt has reached a staggering $1.3 trillion and now exceeds credit card and auto loan debt.

THE IMPACT

For federal student loans, the standard repayment schedule is 10 years. However, a One Wisconsin Institute survey of 62,000 individuals with student debt revealed that, on the average, it takes a college graduate with a bachelor's degree 19.7 years to pay off a loan. For graduate-degree holders, the time is 23 years. The average repayment is $500/mo. for those with bachelor degrees and $650 for those with graduate degrees.

A major problem is that the bulk of the loan repayment happens early in the career of the college graduates, when their earnings are the lowest--and can constitute a significant portion of their overall income. The situation is particularly serious for graduates in fields that do not pay high salaries or are underemployed (Figure 2). The problem is further compounded by the fact that an upsurge in high-interest student loans has outpaced inflation and earnings growth for college graduates.

As a result, delinquencies (payment 90+ days delinquent or in default) have increased dramatically. Today, delinquencies stand at 11.2%, nearly double what they were in 2003. To put that number in perspective: The mortgage delinquency rate is...

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