How to finally address the country’s out-of-control student loan crisis, according to a finance professor
For the first time in US history, total student-loan debt exceeds $1.5 trillion — surpassing both auto-loan and credit card debt.
Mark T. Williams teaches finance, risk management, and capital markets at Boston University and says the sprawling financial-health crisis demands a multi-pronged solution.
Generation Student Debt is the unenviable #hashtag for 45 million borrowers. They believed in the American Dream that you go to college to get ahead. But for one out of every four Americans, that has required taking on more and more debt. This growing class of debt holders, two-thirds of whom are female, range from newly minted graduates to 60-somethings. As loan defaults skyrocket, many are exposed to long-term financial harm while rising student loan debt impacts mental health and worsens gender and racial injustice. Managing this sprawling financial-health crisis demands a multi-pronged solution.
First, some intimidating facts.
For the first time in US history, total student-loan debt exceeds $1.5 trillion, surpassing both auto-loan and credit card debt (only mortgages are more).
Over the last decade, college enrollment of high school graduates has reached 67 percent, and student-loan debt has more than doubled. To meet this demand, federal government and private lenders offering less-friendly terms have ramped-up lending.
Each quarter, students (and co-signers) add $30 billion in new debt at interest rates as high as 13 percent.
Interest compounds once the loan is taken out, increasing the odds that students will graduate with greater debt than when they started. Even seven years after graduation, many owe more than originally borrowed.
Unlike typical consumer debt, these loans can’t be legally discharged in bankruptcy, so consequences of default can be severe, a financial albatross.
Unfortunately, tuition costs have climbed while wage growth needed to cover this indebtedness has not kept pace. Since the 1980s, the average cost of college has increased almost eight times faster than wages, leaving a widening financial burden to meet. In the last two decades, the average cost of attending a public university has increased to over $20,000. Private university costs are at least double that. Long gone are the days when a student can work during college and upon graduation emerge with no debt. Students today graduate with both degrees and life-altering, potentially crippling debt.
Although the cost of college has exploded, so has the demand to attend. On average, college graduates can expect to earn 84 percent more during their lifetime than high school graduates. This income gap is at a historic high.
Such widely cited statistics have generated a boom in loan demand. In 2018, students arriving at American colleges and universities total 20 million — some 70 percent will graduate with significant debt. Many students also are doubling down with 40 percent of loans linked to graduate degrees.
And while the cost of higher education has mushroomed, middle- and lower-income families have experienced stagnant earnings growth, putting greater reliance on student loans. This …read more
Source:: Business Insider – Finance