Outstanding student loan debt in the United States topped $1 trillion in 2011—$864 billion of federal student debt and approximately $150 billion of private student loan debt, according to the Consumer Financial Protection Bureau and the U.S. Department of Education.
“Our findings reveal that students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” said CFPB Director Richard Cordray. “Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford. Moving forward, we must do our best to leave the next generation in a better place than we are today, rather than buried under a mountain of debt.”
Looming Financial Issue
Experts say there’s plenty of blame to go around for excessive debt, which is a looming financial issue for the economy and the government.
“Far too many of my students at Tulane were leaving the university with [more than] $100,000 in debt and few marketable skills,” said Chris W. Surprenant, an assistant professor of philosophy at the University of New Orleans who had spent his previous four years at Tulane.
“What are they supposed to do once they graduate?” he said. “Those who enter the workforce immediately upon graduation are earning salaries of between $35,000 and $45,000 per year. After taxes and normal living costs, few graduates are able to pay more than the minimum interest on their student loans. Once they stop giving loans to 18-year-olds to study art history of sociology, it will change higher education in this country dramatically -- and probably for the better. Right now far too many people are going to college, which, in this country, has become nothing more than grades 13 through 16.”
Citing the amount of money spent on administrative staff and other unnecessary expenses, he said he believes successful universities will be those that “cull many of these useless administrators and refocus their efforts on providing high-quality, undergraduate education.”
The crisis is already here, according to Joe Orsolini, president of College Aid Planners, Inc., in Glen Ellyn, Ill.
“Unlike the tech bubble or the real estate bubble, in a student loan bubble there are no assets to devalue,” Orsolini said. “What gets devalued are lifestyles. Because of high debt load, young adults are no longer able to make the transitions in life [marriage, home buying, children, etc.] like past generations. Unfortunately, this crisis cannot correct itself quickly, and its impact will be much deeper than previous bubbles. When you are deep in a hole from debt, you cannot do things like get your own an apartment or a car.”
He said to expect this problem to result in continued depression of real estate prices, delayed marriages and family formation, and fewer children. “Working until your mid-30s paying off debt doesn't leave much time to have kids.”
Orsolini added, “All the other economic activities associated with buying a house and car and having children will grind to a halt if young adults are stuck living in their parents’ basements. What becomes of the furniture, auto repair, or baby stroller industries if the triggering economic activities are not occurring because of too much student loan debt?”
Demand-Driven Price Hikes
“You’re already seeing that people can’t get out from under [the debt],” said Ryan Clark, president and CEO of Clark College Funding in Charlotte, North Carolina, and author of College Aid for Middle Class America.
“A lot of parents take out the Parents Plus loans figuring it’s only a couple of hundred dollars a month. But then they need another one for each year. And if the child quits school, the parents are stuck with the payments,” Ryan said. “Part of the problem is that we coddle kids too much rather than looking at the value of different colleges. The other problem is that college price is based on demand. Colleges increase costs and we just accept it. We have to demand that they bring the cost down or find cheaper alternatives.”