Is student debt a crisis?
Collectively, Americans owe $1.78 trillion in student loans. That's more than we owe for credit cards and cars. Only mortgage debt ranks higher on this measure. The Biden administration calls the student loan situation a crisis.
Some believe the nation's $1.63 trillion in outstanding student loans could pose a threat to the economy in much the same way as the mortgage crisis did in 2008 and 2009.
Key Takeaways. Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
As Bloomberg reports (paywall), "As monthly debt payments resume, gross domestic product growth could drop by an estimated 0.1% in 2023 and 0.3% in 2024." That could increase the likelihood of a recession and stall the economic recovery in key industries still recovering from the pandemic's impact, like retail and ...
| Total Student Loan Debt | Repayment Period |
|---|---|
| $10,000-$20,000 | 15 years |
| $20,000-$40,000 | 20 years |
| $40,000-$60,000 | 25 years |
| Greater than $60,000 | 30 years |
Signs of trouble with student borrowing began to appear by the late 1980s. In 1986, parents and students had incurred nearly $10 billion in federal student loans – then considered an outrageous amount.
If you're a recent college graduate with a mountain of student loan debt — say $100,000 or more — paying off such a large amount could be a major struggle. For example, if you're making payments on federal student loans under the standard 10-year repayment plan, your minimum monthly payment might be quite daunting.
Nearly a quarter of Americans with student loan debt (24 percent) say borrowing too much for their education is their biggest financial regret, according to a Bankrate survey conducted in June.
51% of 2021-22 bachelor's degree recipients graduated with an average of $29,400 in student loan debt. Among all borrowers, the average student loan debt in 2023 was $38,290. 53% of federal student loan borrowers owe $20,000 or less.
Higher education financing allows many Americans from lower- and middle-income backgrounds to invest in education. However, over the past 30 years, college tuition prices have increased faster than median incomes, leaving many Americans with large amounts of student debt that they struggle or are unable to, pay off.
How would cancelling student debt help the economy?
Student loan debt slows new business growth and limits consumer spending. Broad student loan debt forgiveness may help boost the national economy by making it more affordable for borrowers to participate in it.
Soaring college costs and pressure to compete in the job marketplace are big factors for student loan debt. Student loans are the most common form of educational debt, followed by credit cards and other types of credit. Borrowers who don't complete their degrees are more likely to default.
Key takeaways. Paying off student loans early can benefit you financially, but it should typically come second to building your emergency fund and retirement savings.
In the good debt versus bad debt debate, student loans fall into a gray area. They can be considered good debt because the money you're borrowing to attend school is your ticket to earning a degree and getting hired at a well-paying job. That debt should pay itself off over time with a lucrative career in place.
“Substantial interest rate increases have major consequences for the cost of funding student loans,” said Waltmann. “While the government was always going to lose money on the fraction of loans that aren't repaid in full, it could previously expect to make a profit on the loans that are.
Student loan debt in the United States totals $1.727 trillion; 2023 saw the first-ever annual decline in student loan debt. The outstanding federal loan balance is $1.602 trillion and accounts for 92.8% of all student loan debt. 43.2 million borrowers have federal student loan debt.
When they leave college with debt, many without a degree, people start from behind—enjoying less financial stability and experiencing more stress than prior generations. This, in turn, makes them question the value of education, both for themselves and for others.
As you can see below, the average student debt by state is only about $40,000 or less. However, more than 2.6 million borrowers have an average student debt greater than $100,000. And to top it all off, 14.4 million borrowers aged 35-49 have a staggering total of $622 billion in US student debt.
It's perhaps no surprise, then, that 24% of Americans with student loan debt say it's their biggest financial regret, according to a survey from personal finance site Bankrate.
It's the result of a decades-long explosion in borrowing coupled with soaring education costs. The Federal Reserve data shows people under the age of 30 are more likely to have student loan debt compared with older adults – underscoring the crippling burden on another generation of Americans.
