Friday, February 03, 2017

Student Loan Debt

I know a lot of younger people given the age of my children and the ages of my friends kids.  For whatever reason I've had a discussion with several of them as well as parents and clients on the issue of student loans.  I am convinced that the student loan debt issue is a significant impediment to economic growth in this country.  Here's why:

You see different numbers depending where you look but the data I can find seems to indicate that Seven in 10 seniors (68%) who graduated from public and nonprofit colleges in 2015 had student loan debt, with an average of $30,100 per borrower.   The data is a few years old but I'm guessing this is still pretty close to the mark.  A young person graduating from college with $30,0000 in debt paying a 5% rate will pay a bit over $318.00 per month on a standard 10-year payoff plan.  That's $3,816.00 every year out of their pocket.  For somebody starting out making say $35,000 a year they are losing nearly 11% of their income to debt service.  That's money that isn't being used for other things and is therefore not being recycled into the economy from their spending.

  • $1.26 trillion in total U.S. student loan debt
  • 44.2 million Americans with student loan debt
  • Student loan delinquency rate of 11.1%
  • Average monthly student loan payment (for borrower aged 20 to 30 years): $351
  • Median monthly student loan payment (for borrower aged 20 to 30 years): $203
Student loans are generally not dischargeable in bankruptcy.  There's a bit more too it than this blanket statement on forgiveness but just know that you can't walk away from student loan debt like you can with other types of credit.

Take a moment and chew around that $1.26 trillion in total student loan debt.  Think about all that money begin repaid each month in this country that would otherwise go to different things.  Now this is not a column on the morality of these loans or on how we ought to fund college.  What we're doing here today is taking a broad view in how this huge chunk of cash going back to banks each month instead of out into the economy is probably a break on economic growth.  I'll have more to say in future posts.  For now anybody wanting to play around with their loan debt picture can go to this student loan calculator over at the New York Times.  There are others places out there that may give you a more detailed picture, but this is pretty good for an overview of loans, what you'll payout and what you might save by paying even a few dollars more in each month.