“Shadow debt” consisting of loans not captured in traditional reporting should be taken into account when the impact of rising college costs on families is considered. A comment on CollegeConfidential explained it this way.
There’s several different ways to borrow for college which won’t show up with the current data mining techniques.
- Borrow from home’s equity
- Borrow against 401K
- Charge on credit cards
- Borrow from relatives
Given parent plus loans are fairly expensive (relative to this low rate environment) parents might be finding cheaper ways to borrow.
Interest rates on unsubsidized Stafford loans are 6.8% and Parent Plus loans are 7.9%. By comparison, home equity rates averaged 4.58% this week. Anecdotally, I can think of at least three families that have tapped into their home equity to help pay college tuition. I borrowed from a relative when I was in college.
How much student debt goes unreported?
The question arises, then, of how much shadow student debt goes unreported. Andrew Gillen did a back of the envelope calculation, based on Sallie Mae’s reporting of how families pay for college. He concluded that the official student loan figures should be bumped up by about 31%. I did a similar calculation and came up with a factor of 28%.
Official student debt figure has been reported to be more than $1 trillion. Although it’s unclear whether it should be bumped up by 10%, 30%, or 100%, I’m convinced that a substantial amount of college debt is going unreported.