Student Debt - Reality is Now

An unexpected paradigm shift.  When one reads about a paradigm shift – a change signaling a new way information is interpreted, it is nearly always in reference to a new and more accurate way of thought.  Yet, we see in this country paradigm shifts of another category, those that suggest a decline in outlook, in values, and in prestige.    This paradigm shift is about national, state, local, but particularly student debt. This is a story of unexpected and unintended consequences.   Case-in-point: student loan debt, defaults and their implications. 

The new reality…   for many students, there is no debt.  It is an abstract concept not pertaining to regular people, i.e. us. 

  

As though there are not enough fiscal problems facing the US Treasury, we have the following… “The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. The Department will continue to work with institutions and borrowers to ensure that student debt is affordable. We remain committed to building a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.

There must be a consequence of flagrant spending,  decades ago called “bullets and butter,” coming our way.  It is not just debt.  All of us have been in or are in debt, but mostly we have or had a plan for debt resolution.  What happens if we spend without reserve?  This is something like a teenager with her first credit card.  Buy now, pay later.   That is, until the credit runs out.   My kids have been there.  Their few thousands in debt are manageable with caring parents, but credit wings are eventually cut.  Even the kids know this has been too much.   That is when their vigilant parents are still at the helm of future disasters. 

It is just not the debt.  It is a manner of conduct.  It is an attitude. It has become an operational way of thought. Debts do not need repayment!  Hang on, debts will be forgiven.    The expectation is for a bail-out.  Numerous cities, now insolvent, were counting on a bailout.  However, the vast and unrelenting spending of that last few years has minimized their hopes for federal help.   Cities in debt are on their own recognizance.

I’ve been through this borrowing a few hundred dollars at least a century ago for tuition.  I never thought of paying it back.  I didn’t want to.  Yet, I did.   I promise.   If I ever run for President, the Press will dutifully check this out.  

Has this become a national problem?  About  $994 billion is owed, or $80 billion more in just one year:  (See table below.)  With $146b in loans classed as nonperforming, student loan debt has become a crisis.  Indeed, student debt was a mere $200m in 2009.  In only four years it has jumped more than threefold, making this a clear indicator of a looming crisis.    Student credit card balances average about $750, though fewer than 3% had a credit card balance exceeding $4,000.  More than 60% of college seniors have credit cards.  (http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php )   While some of these values seem reasonable, it is significant that only a small percentage in the extreme range points to serious issues.   Student  debt has numbers, perhaps too many numbers.   For graduating college seniors, we have interesting numbers. (See. http://host.madison.com/news/opinion/column/john-etchemendy-and-vivek-wadhwa-five-myths-about-college-debt/article_4800ffbf-a7a7-5c4b-b076-dc7b1a8c045d.html#ixzz2gbYQFewk)

An easy implication is that fully 11% of graduating seniors have at least $40,000 in debt.  Even worse is that fully 20% of graduates have at least $30,000 of debt.  While this may seem small to many, it is quite large to the graduate without a job.  It is large when multiplied by the sheer number of graduates.  In the chart below, some of the information is updated to the current time, obviously implying ever worse student loan indebtedness.

Time series view of student debt.

See: http://research.stlouisfed.org/fred2/series/FGCCSAQ027S