Posts tagged ‘Student debt’

December 9, 2013

Where do students put the blame for their student loan problems?

by Grace

Students put most of the blame for rising student debt on colleges and the federal government.

A national poll of four-year college students has found that they are more likely to blame colleges than other institutions for the rising levels of student debt. The poll, by the Harvard University Institute of Politics, found that 68 percent of those polled viewed student debt for young people as a major problem, while 21 percent viewed it as a minor problem. Asked who was “most responsible” for rising levels of student debt, students cited the following:

  • Colleges: 42 percent
  • Federal government: 30 percent
  • State governments: 9 percent
  • Students: 8 percent
  • Other: 4 percent
  • Refused to answer: 7 percent

Colleges may claim that they are blameless since they are subject to forces beyond their control, but it’s certainly reasonable for students to point fingers at the institutions to which they are paying tuition.

Do students think federal spending has been too little, or too much?

Federal government spending has climbed over the long term, with substantial increases in recent years*.  If it’s true that government spending has been a major reason for the dramatic escalation of college costs as well as related debt levels, then students are right to blame the federal government.  But I suspect that was not their line of reasoning, and that they want taxpayers to fund more of their education.

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Meanwhile, state spending per student has been dropping but very few students see that as the major problem.


*
 2009 marks an anomaly however since there was also a one-time accounting adjustment for all student loans issued since 1992, which made it appear that the federal government more than offset its spending for higher education during that year. These adjustments helped conceal the full magnitude of the federal government’s all-time record budget deficit in that year, which perhaps helps to explain the timing of these adjustments.
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November 4, 2013

The expected retirement age for today’s college graduates is 73

by Grace

College debt pushes retirement age for today’s college graduates to 73.

Having to spend “the first ten years (or more) of their careers paying off their hefty loans” will mean a postponed retirement for “debt-straddled” college graduates.

With the total amount of outstanding student debt approaching $1 trillion, the plight of debt-straddled college students is more important than ever. In the past 30 years, not only has the number of high school graduates enrolled in four-year universities increased by 11%, but college tuition has also soared over 200%. As more students attend college at a cost higher than ever before, Millennials have increasingly turned to loans to help finance their education. While much of the college debt dialogue is over immediate issues like employment and repayment, there is another glaring challenge that graduates will have to deal with for years to come: retirement.

When will students be able to retire given that many are spending the first ten years (or more) of their careers paying off their hefty loans? NerdWallet conducted a study that examined the financial profile of a typical college graduate and found that while retirement is certainly not impossible, for most it will have to wait until their early to mid 70s— over 10 years later than the current average retirement age of 61.

Starting late to save for retirement

Clearly, student debt has an impact on retirement outcomes. Currently, the average retirement age is 61. But for most of today’s college grads, the realistic retirement age will be closer to their mid-70s. Given an average life expectancy of 84, this will leave only 10-12 years for people to spend in retirement. The main reason for this is that although the median college graduate leaves with a seemingly manageable $23,300 debt load, 7% of a student’s earnings go toward yearly loan payments of $2,858 for the first ten years of his or her career. This prevents any meaningful contributions toward retirement. In fact, by the age of 33, when the typical college grad has finally paid off their standard 10-year loans, he or she can only be expected to have saved $2,466 for retirement—over $30,000 less than if the student had graduated with no debt. Even worse, the foregone savings carry a serious opportunity cost, as this money would have been earning a compounded rate of return every year until retirement. At the projected retirement age of 73, the lost savings directly attributable to student debt is $115,096, nearly 28% of total retirement savings.

GRADUATE RETIREMENT OUTCOMES

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Average retirement age is on the upswing.

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College debt just exacerbates the trend for some people.


The college wage premium may not offset lost retirement savings.

On average, the college wage premium may offset the lost retirement savings caused by paying down student debt.  But on an individual basis, results may vary.  Any boost in income related to a college degree is highly dependent on the field of study and the student’s ability.  For example, how much of a wage premium will the C-average, ethnic studies college graduate actually receive?

Related:  The challenge of paying for college and saving for retirement at the same time (Cost of College)

October 31, 2013

Scary student loans

by Grace

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Student debt levels surge to frightening levels.

Student Loan Defaults Surge To Highest Level In Nearly 2 Decades

Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting “crisis” levels of student debt and a lackluster economy that leaves graduates with bleak employment prospects.

One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to annual figures made public Monday by the Department of Education.

A separate gauge, measuring defaults occurring within the first three years of required payments, showed that more than one in seven borrowers with federal student loans went into default, an event that can trigger invasive debt-collection methods that include fees, wage garnishments, and withheld IRS tax refunds.

“The growing number of students who have defaulted on their federal student loans is troubling,” Education Secretary Arne Duncan said. Duncan said the department will work to “ensure that student debt is affordable.”

Taxpayers hand out “treats” to struggling borrowers in the form of debt-relief programs, but many who have defaulted may be unaware of these bail-out options.

To ensure that students are aware of the flexible income-driven loan repayment options available through Federal Student Aid (FSA), this fall the Department will expand its outreach efforts to struggling borrowers to inform them about the different plans. The Department has also released new loan counseling tools to help students and families make more informed decisions about planning for college. Students and families can visit www.studentaid.gov for more information.

Happy Halloween!

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April 23, 2013

Do we have a student loan crisis?

by Grace

While it’s unlikely that student loans on their own have created a crisis, they do seem to be a drag on our struggling economy.

When the The Atlantic looked at the student loan “crisis”, some of the numbers are alarming.

… The cost of college has spiked 150 percent since 1995, compared with a 50 percent increase in the cost of other goods and services. Last year, outstanding student loans soared to nearly $1 trillion—a 300 percent jump since 2003. College is an undeniably risky investment, seemingly more so than ever. But are rising debt levels a national crisis?

But their infographic presented a more balanced look at some of the numbers, with the first three sections making the argument that the averages do not support the idea of a crisis.

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Not a crisis, but problematic for a struggling economy

Updated 2012 numbers from the Federal Reserve Bank of New York report

The paper starts by noting that student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.

Younger Americans with student debt are less likely to buy homes and automobiles, holding back spending that has typically fueled past economic growth.

… it looks like rising student debt really might be eating into the housing and auto markets. If so, that could have big implications for the U.S. economy. Auto and housing sales have been a huge driver of growth these past few years, though auto sales are still well below their peak. (Analysts are expecting around 15 to 15.5 million sales in 2013, versus an average of 16.6 million per year during the 2000s.) If younger Americans are retreating from those markets, that could help slow down the recovery.

Related:  College debt levels higher than all other types of consumer loans (Cost of College)

December 6, 2012

Wages for college graduates fall while tuition and student debt rise

by Grace

Two charts that show wages for college graduates are falling while tuition and student debt are rising:

This “shocking chart” has been making the rounds recently.

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Earlier this year, I posted a copy of this.

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On top of all this, we have an economy today where 40% of all federal spending is borrowed, so that our children will have to pay for it.

Related:  The twin problems of rising debt and falling wages for college graduates (Cost of College)

October 11, 2012

‘Shadow debt’ – unreported student loan borrowing

by Grace

“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.

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July 22, 2011

Sobering student loan stories

by Grace

Like a rubbernecker driving past a horrific accident, I can’t help but slow down and read when I run across sobering college debt stories like these.

Erik Solecki
Student debt: $185,000
Degree: Bachelor’s in industrial engineering from Kettering University
Was my college degree worth it? Hell no….

Saniquah Robinson
Student debt: $82,000
Degrees: Master’s in Health Science from Chatham University; Bachelor’s in psychology from Temple University
After holding my Master’s for three years, I’m still fighting to find a Master’s level position….

Shane Dixon
Student debt: $72,800
Degrees: Master’s in public health from University of South Carolina; Bachelor’s in biology from Clemson University
In my early years after high school, I wavered between trade school and college, but eventually opted for college and earned a Bachelor’s in biology.

Michelle Shipley
Student debt: $140,000
Degree: Bachelor’s in political science and international development from Tulane University
Like many, I had no idea what money meant when I was 17. My family is not wealthy. I simply didn’t have the information or knowledge to know what it would be like now.

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