Friday, April 18, 2014
This isn't a surprise to anyone who knows -- or is -- a recent college graduate staggering under the weight of huge student loans.
But others should note that the Federal Reserve Bank of New York just published a report saying, "Total student debt has nearly tripled since 2004," is nearing a total of $1 trillion and is "the largest consumer liability after mortgages."
That runs against a trend in which all other forms of consumer debt have been falling. Thus, the report says, "The unique behavior of student loans -- the only type of household debt to experience steadily increasing balances and delinquency rates since 2008 -- merits special attention. ..."
Just like many mortgages, ever-increasing percentages of student loans are not being repaid -- even though they have been made more difficult to discharge through bankruptcy than other types of debt.
And yet, the N.Y. Fed reports, "Total student debt stands at $966 billion as of the fourth quarter of 2012. ... The number of student loan borrowers and the amount each borrower owes have both risen 70 percent since 2004."
The number of degree-seekers is rising for several reasons. First, more employers use a degree as a minimal "weeding-out" standard for entry-level positions in areas that formerly did not require them.
Second, other employers have boosted their academic qualifications simply because more students have met the minimum requirement, so the larger pool of applicants has enabled employers to be more choosy.
And generations of students have been told a degree beyond high school is a ticket to far better incomes over a working lifetime. The number of students seeking college degrees has risen 12 percent in just the past five years, the College Board reports.
But since relatively few can afford to pay the costs of higher education out-of-pocket, much of the expense is financed by easily acquired loans and federally subsidized grants. So, schools have until very recently not felt any need to restrain spending or hold down tuition fees, which have risen far faster than the rate of inflation.
CNN Money reported last October that tuition at public four-year colleges had risen 104 percent over 10 years, more than triple the inflation rate.
At private nonprofit four-year schools, the rate of increase (from a much higher base) was 60 percent -- still twice the rate of inflation.
So as student numbers and college costs soared, student debt rose, too, especially in professional schools.
And it's getting much harder to repay that debt, because fewer jobs are available in a number of professional specialties, including the law, veterinary medicine and other fields where qualifications require substantial outlays for professional schooling.
Opportunities for liberal arts graduates are also falling far short of the many good-paying jobs they were led to believe existed.
So, the bank said, "about 17 percent of borrowers are at least ninety days past due on their educational debt, but when we remove the estimated 44 percent of all borrowers for whom no payment is due or the payment is too small to offset the accrued interest, the delinquency rate rises to over 30 percent."
And that's bad not just for the borrowers, but for the wider economy, the bank says.
One reason why overall consumer debt is decreasing is precisely because higher student loan balances and delinquencies were "accompanied by a sharp reduction in mortgage and auto loan borrowing and other debt accumulation among younger age groups, with the decline being greater for student loan borrowers and especially so for those with larger student loan balances. In addition, we find delinquent student borrowers much more likely to be late on other debts."
Some analysts now say we are undergoing a "higher education bubble" that poses risks similar to the "mortgage bubble" that led to bank, real estate and construction collapses in recent years.
Ominously, the Wall Street Journal reported Tuesday that sales of securities backed by private student loans were soaring even as the loans' risk of default increased. High potential payoff rates were given as the reason for the boom, even though defaults in high-rate securities based on risky mortgages was a chief spur for the housing crisis of the past five years.
Some say the only way out of the mess is to create "the $10,000 degree," procured at least partially through online education that avoids the high costs charged by schools with huge, expensive faculties and physical plants.
That won't help current debt-holders -- only changing bankruptcy laws can do that -- but it could provide longer-range relief, if it is allowed to happen.
Online schools are often strongly opposed by those invested in the current system, but those vested interests will face increasing challenges if the situation gets worse.
And hardly anyone is saying it will get better anytime soon.
M.D. Harmon, a retired journalist and military officer, is a free-lance writer and speaker. He can be contacted at: