The Student Loan Debt Crisis is Going to Be Worse for the Next Generation

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Right now, the stock market and US economy is booming. Almost every day Pres. Donald Trump talks about his accomplishments when it comes to jobs. While this might be true in most instances, it’s not true for college students. Student loan debt is getting worse for millennials and it’s interfering with their lives.

Imagine graduating from college already $50,000 in debt. Immediately after you graduate, you have to start paying it back. It’s not going to go anywhere. Every month, you’re expected to pay back the equivalent of a rent payment. In some cases, the debt so high, that students have to pay the equivalent of a mortgage.

How are you expected to start your life or raise a family so much debt weighing you down? Federal student loans are the only segment of debt in the United States with continuous cumulative growth. This growth has continued exponentially since the Great Recession. Yet, the crisis we’re experiencing today isn’t the worst of it.

All indicators point towards student loan debt to grow even higher. There’s been 157% growth over the last decade. In comparison, auto loan debt has only grown 52% while mortgage and credit card debt has fallen. Student loan debt is the second largest amount of debt owned by Americans, and it keeps getting worse.

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Student Loan Debt Keeps Growing

As the population of the United States continues to grow, more people are going to college than ever before. With the economy of the last decade, as well as the rise in the costs of a college education, have made getting a degree that much more unaffordable. This is forcing students to get a student loan at unprecedented rate.

Is not just the cost of college either? Interest rates on student loans are at their highest level. The cost of getting a college education is so expensive, that is much as 85% of students are working a job instead of studying. It’s expected that by 2020, over 43% of student loans will go into default.

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“Students aren’t only facing increasing costs of college tuition; they’re facing increasing costs of borrowing to afford that degree,” said John Hupalo, founder and chief executive officer of Invite Education, an education financial planner. “That double whammy doesn’t bode well for students paying off loans.”

It wasn’t really until the Great Recession when students started becoming delinquent on their student loan. For-profit colleges started making promises that they didn’t keep. The schools said they had a high job placement rate at a time when people were desperate for high-paying jobs. It all turned out to be a predatory marketing ploy.

By the time the students graduated, they had no job and a degree that didn’t help that much. Add in between $25,000 and $50,000 worth of student loan debt, you’ll start to see how much more difficult this made life for students. Ultimately the students were left with debt that they couldn’t pay back.

For-Profit Schools Under the Gun

By 2011, for-profit schools represented nearly half of student loan borrowers across the country. The students who went to the schools accounted for 70% of all student loan defaults. The default rate skyrocketed to 11% the next year alone. Less than a decade later, the rate hasn’t changed despite a better economy.

“There’s a systemic problem in the student loan market that doesn’t exist in the other asset classes,” said Hupalo. “Students need to get a job that allows them to pay off their debt. The delinquency rate will rise as long as students aren’t graduating with degrees that pay back that cost.”

The problem is only going to escalate for future generations. The cost of borrowing for school has risen in the past two years. That rate is not going to change anytime soon. Interest rates have jumped 5% this year alone. As more students are slated to go into default in the future, it’s only going to make the US economy that much worse.

Student loan debt is unpayable, students will end up in default. That means they won’t be able to get a mortgage, a car loan, or even get married. Research is already revealing that millennials are putting off major life decision solely because of student loan debt. As college gets more expensive and interest rates continue to climb, this problem will only get worse.

The Fed chairman, Jerome Powell, agrees.

“You do stand to see longer-term negative effects on people who can’t pay off their student loans. It hurts their credit rating; it impacts the entire half of their economic life,” Powell testified before the Senate Banking Committee in March. “As this goes on, and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.”

Last modified: January 14, 2019