We're burying our country's future under a mountain of debt.
If the Consumer Financial Protection Bureau is right, the total outstanding student loan debt in the United States now stands at above $1 trillion dollars. In economic terms, that changes very little about what we already knew regarding college borrowing. The Federal Reserve Bank of New York had previously pegged the figure at $870 billion by the end of 2011. Either number would be larger than America's collective credit card balance.
But psychologically, it's a sad threshold. A trillion dollars -- it brings home just how enormous the burden is quickly becoming.
There is only one silver lining to the news. It's a sign, partly, that more students are going to college. It doesn't mean more are graduating, or that those who finish are finding gainful employment. It only means that an increasing number of Americans understand that they need an education to survive in the modern economy. Although earnings for colleges graduates are stagnating, they're not shrinking at the same breathtaking pace as wages for workers who only have a high school diploma. Getting a degree is the only reasonably safe route into the middle class, these days. It seems people are absorbing that lesson.
Otherwise, there's really nothing good to say. Student debt is skyrocketing alongside tuition prices, which have been fueled by a horrible confluence of state budget cuts and rising institutional costs. We still do not have a clear consensus on how to tame those forces. The White House has offered a few smart ideas, such as withholding a small amount of student aid from campuses that don't restrain tuition. But they're mostly half steps. As of now, they're also only theoretical.
And so we've reached a point where two-thirds of college seniors now graduate in debt, where a total of 37 million Americans now owe money on their education. Sixty-seven percent are between the ages of 18 and 39, but recent research suggests the fastest growing group of borrowers may be in middle age -- people who have been laid off from jobs or are afraid their professional skills aren't fresh enough to keep up with a changing economy. Among all borrowers, the median balance is $12,800. Thanks to a select group of students who are deeply in debt, the average is skewed higher, at $23,300.* For young graduates -- or dropouts, for that matter -- the debt will drag on their finances well into adulthood. For the adults, it's an investment they may not have a time to recoup.
Many are already being overwhelmed by what they owe. The NY Federal Reserve believes that more than a quarter of all borrowers with due loans are now delinquent on some of their payments.
The future could be even dimmer. The CFPB is currently trying to estimate the size of the private student loan market. It's breadth, and its current rate of growth, will tell us just how onerous America's education debt load has become. Federal student loans come with certain protections, such as low interest rates and income-based repayment plans that can cushion the impact on a borrower's finances. Private loans don't have that. If a college freshman naively takes out too much money from a bank, they're stuck paying on the bank's terms. Between 1999-2000 and 2007-2008, private borrowing grew fourfold, from $4.5 billion to $21.8 billion. One study found that one third of the class of 2008 graduated with such debt, averaging $12,800 each. The CFPB says it will have a more complete picture by this summer, but if private borrowing has continued on its dramatic upswing, it will spell more trouble ahead. Certainly, we should expect more delinquencies and defaults.**
In any event, all signs point to this situation getting worse before it gets better.
*An earlier version of this post misstated the average as $28,000.
**3/23/2012 I updated with section with some additional data.
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