Wednesday, February 08, 2017

Chart Talk: Student Loans.

From Zero regarding the rise of student loan debt:

"But while US consumers may have stepped back from a credit-card funded splurge in the last month of 2016, the far more troubling trend in student and auto loans remains, and as the following chart shows, as of Q4, both car and student debt hit all time highs of $1.407 trillion and $1.11 trillion, respectively."

I don't want to discuss car loans but that $1.407 trillion in student loan debt is a number we all need to bring into focus.  On one hand you can argue that student loans pay for themselves down the road in higher wages for a young person graduating from college.  I agree with that.  The average student loan I think is something like $30-35,000.  {I didn't have time today to go find the most commonly accepted number.  For this posting let's just accept this is close to the mark.}  Basically at that level you have a degree that hopefully pays for itself throughout a person's lifetime for the price of a decent new car.  

But those basic numbers  may not true for the kid who finances his way through four years of a private college.  That person may be looking at over $100,000 in debt.  A student financing their way through graduate school is shouldering even more of a debt burden.  I've talked to young people leaving graduate school with $200-300,000 in debt.  Taking a 30 year period to pay off that load means hundreds of thousands of dollars paid out in interest and all of that money being paid back to banks that isn't being spent out in the economy.

In fact take a look at that $1.4 trillion dollar number.  All of that is money that is either being paid back or will be paid back over the next 30 years or so.  Now you can argue that banks simply recycle a large part of those payments back into the economy and you would be correct.  But that number also represents money that isn't being spent on everything, homes, vacations, you name it. 

You want to get our economy back on track, then figure out three things.  Figure out how to lower the cost of a college education for most kids.  Figure out a better way to pay for it than we have today and then figure out a way to reduce the debt burden of this current generation of students either going through the system or who have recently passed through it.