Since the financial crisis tore into the U.S. economy and
crashed the housing
, consumers worked hard to reduce household
and get their finances squared away.
From Q3 to Q4 2011, the total debt held by households shrank $126
billion to (a still massive) $11.53 trillion, according to the New
Quarterly Report on Household Debt and Credit
. Given the severity of the housing crisis, it shouldn't surprise
anyone that a lot of this decline came from falling balances on
mortgages and home
, which shrank an aggregate $134 billion from Q3. Student
indebtedness, however, increased to a total of $867 billion.
A new report from the New York Fed entitled "
Grading Student Loans
" examined the trends from Q2 to Q3 2011 and concluded that student
loans now represent a bigger portion of the total U.S. private debt
and auto loans. The report drew from Equifax and the Fed's
Quarterly Report, which began publishing data in the middle of
It should surprise no one that of the 37 million student loan
borrowers in the country, nearly 40 percent are under the age of 30
and nearly 67 percent are younger than 40. This cohort holds a
nearly identical proportion of the total $870 billion balance, with
each borrower owing nearly $30,000.
At first glance, the report offers a relatively optimistic picture
of the delinquency situation, suggesting that around 10 percent of
the total balance is past due in some form or another; roughly
comparable, the authors point out, to other forms of debt like
mortgages and credit cards. However, because so many younger
borrowers haven't started paying down their loans (they're still in
university, graduate programs or some other form of deferral) the
figures are skewed.
The authors took these factors into account and concluded that "as
many as 47 percent of student loan borrowers appear to be in
deferral or forbearance periods, and thus did not have to make
payments as of third-quarter 2011. Specifically, 17.6 percent of
borrowers had exactly the same balance in the third quarter as in
the second quarter of this year, and 29.1 percent increased their
overall student loan balance by taking on new originations or
to the balance."
Of those actively repaying their loans, over a quarter hold a past
due balance, while the remainder managed to reduce their total
obligations from Q2 to Q3 2011.
A complex web of private decisions, market incentives and policy
decisions brought the educational-financial complex to this
junction. The automation, outsourcing and decline of U.S.
manufacturing made it far more important to get a college degree
and secure a white-collar position to build financial
. Demand for undergraduate and graduate degrees rose, so
universities and colleges increased the cost of tuition accordingly
while splurging on fancy facilities to attract student-customers.
Indeed, many colleges took on debt and issued huge quantities of
to pay for student centers, athletics and dorms, and now face their
own institutional crises.
At the fringes of the system, private education companies exploited
the niche left by the gaps in the traditional model of overcrowded
four-year undergraduate and two-year
programs. The government subsidized the massive growth in borrowing
made necessary by rising tuition and stagnant wage growth. Lenders
in the private
moved in to pick up those unable to secure federal loans, and the
whole leviathan churned forward, creating a new generation forced
before they ever held a full-time job.
Of course, the situation could be a lot worse - and for a picture
of just how dire it could be, one only needs to look across the
Atlantic at Europe (where many of the more fortunate US college
borrowers will spend a semester or two). Though young Americans
hold more than $580 billion in student debt and suffer from an
unemployment rate of just under 25 percent, they're positively
blessed compared to many young Greeks, Spaniards and Portuguese.
While the latter don't have student debt to deal with, they must
face an unemployment rates close to 50 percent, as
shows with this
chart from Reuters
. In addition, the ever-increasing strain on the common
system threaten to undermine the entire European project and plunge
the continent into economic chaos.
For U.S. debtors, the best short-term moves are to find relatively
secure work and focus on paying down variable-rate and private
loans before fixed-rate and government debt. Some forms of public
service offer full forgiveness of federal loans after a certain
period, and the armed services remain one of the surest, if most
dangerous, ways to discharge the financial burden of education.
Update: ?Pat Garofalo at Think Progress summarizes the sixfold
growth of education costs over the last three decades