The growing U.S. debt burden is a topic I’ve discussed in detail, including my recent article on rising consumer and auto loan debt.
That’s why I almost fell out of my chair when I read the latest stats on one of the fastest drivers of that debt: Soaring U.S. student loan debt.
In fact, right now the latest numbers on student debt stand at a mind-boggling $1.4 trillion.
And even more insidious: This debt burden has been amassed under the guise of higher education and of enabling students to fulfill their part of the American Dream.
As it stands, the number of individuals with student-loan debt is estimated at 44 million, with the average student loan coming it at a whopping $30,650.
But here’s where the math takes an even uglier turn.
Around 18% — or a stunning 8 million borrowers holding student loan debt — are considered in default.
In fact, data from the New York Federal Reserve indicates that almost half of all 30-year-olds who left college between 2006 and 2011 have missed at least one of their monthly payments.
It gets worse.
Of that 44 million figure, nearly one-third have already defaulted, meaning they’ve missed nine straight monthly payments.
I don’t know about you, but missing nine straight payments isn’t a good sign.
You might be asking yourself … is this industry ripe for a bailout? Is this the 2007 debt crisis 2.0?
Or is this another situation where the Federal government will print their way to a solution?
The situation is to the point where New York Fed President William Dudley voiced interest in free college. And New York Governor Andrew Cuomo is pushing for tuition-free college for middle class students as well.
Now get this …
Many parents (roughly 3.5 million) of millennial students tried to do the right thing to fund their child’s higher education. They took advantage of the government’s Parent PLUS Loan program – to the tune of nearly $100 billion in student loans.
This program allows parents to borrow unlimited amounts of cash to cover tuition and living expenses. And that’s often tacked on after their child borrows the maximum in undergraduate federal loans.
Translation: Even more bone-crushing debt.
And don’t forget: Federally subsidized student loans come with very loose underwriting standards: Those in a poor financial position could borrow amounts that they may never repay.
Sound familiar?
Unfortunately, this dynamic comes as the U.S. economy struggles with an aging population, low productivity growth and reduced willingness of households to spend.
The fact is efforts by previous administrations to pursue ultra-loose monetary policy to stoke economic growth and create demand is producing unintended consequences of burdensome consumer debt loads, including student loans. These are already beginning to curtail consumer spending, suppress new home ownership, and put even greater stress on nearly every corner of the economy.
And it’s very likely that this situation will get worse before it gets better. To quote the words of Larry Edelson: Now’s the time to “prepare for a roller-coaster ride through hell.”
Good investing,
Mike Burnick
Martin May 4, 2017
This is frightening and I am sure will end badly, just a question of when. However, can we stop referring to government paid tuition as “free”? Are the professors going to give up their salaries and are the universities going to allow the students to use their facilities at no cost. I don’t think so. “Free” means some taxpayers fund education for other taxpayers. Let’s just to call it what it really is and stop calling it free, cause it isn’t.
Mike May 4, 2017
Your article quotes 18% in default . The photo quotes 30% …which is it.
Maybe the cars and motorcycles and good times should be put off till loans are paid , it is called
personal responsibility, one more thing missing in our culture of entitlement .My family didn’t have
the money for college so I worked during the day and got my degree at night , not the American dream
but I graduated without any debt and managed to put my 4 kids through college and none were over
burdened with student loans when they graduated ,it is called personal responsibility.
Stu May 4, 2017
When colleges and universities start focusing on education that prepares a person for the workforce and for real life instead of building huge stadiums and fielding professional sports teams along with coddling and brainwashing then the cost of education could come down and the value of that education would increase. A real education could be obtained in three years or less with certain exceptions. But I’m afraid we’re too far down that hole
marci May 4, 2017
So many buy into the idea that education is the way out of poverty or up from the lower working class and end up with outrageous debt and no job or job below their education level and/or one that doesn’t pay very much – if they are lucky enough to find a job at all, much less in their field, and really struggle to pay back the loans, with dashed dreams. It isn’t a character flaw, as some of the commenters seem to assume, when former students have trouble paying the debt (and interest), it’s the state of the economy itself, as well as the gouging of the students and their parents – and there are countless proprietary for-profit schools as well where the quality of the education is secondary to financial gain. (Trump University, anyone?) With the availability of student loans, colleges see more $$ and keep raising tuitions, and scholarships seem to be more rare. You hear about there being new more technical jobs out there (where?) that may require some post-high school education even if not a 4-year degree…how about corporations maybe investing in people by providing more training themselves, like apprenticeships or educational reimbursement and time to go to school instead of bemoaning they can’t find enough qualified people? Many young people would be lining up for programs like that. And, if college costs were more reasonable, maybe students with the interest and ability could actually choose to attend, say, liberal arts colleges (which are rapidly disappearing) for the sake of knowledge and obtaining true higher education, learning to learn, and developing critical thinking skills (valuable in any endeavor) – instead of viewing college as a career factory, which it is not.
George Dearringer May 4, 2017
Generally, more education results in a higher standard of living. However, there are way too many hollow educational choices offered to unsuspecting and unsophisticated young people. Shame on the institutions that fabricated these choices which have no merit for a good paying job. When the government backs the loan, the schools can charge egregious amounts for these phony degrees. I also wonder how much of the student loan ends up in paying for cell phones, ipads, blue jeans, and tennis shoes. Too much debt early in life is going to have sour consequences for unsuspecting young people. Government policy, poorly fabricated educational offerings and unwise use of the funds by the borrowers are all to blame.
Rick Rhodes May 4, 2017
Mike, you talk about the student debt, but did you just see where the UC was just found to have 175 Million in a hidden fund. Who runs the Universities of Cal. Janet N.
Chuck Burton May 3, 2017
If the politicians get their way, and make higher education “Free”, who is going to pay for it? All those buildings and labs and dorms, all those professors and administrators, aren’t going to come free. Huge numbers more of everything will be needed. Everything will cost more, as it does in all government run programs. The US Department of Education will need thousands of new bureaucrats to run the program. That means YOU and I are going to foot the bill by hook or crook. Crook is the best term, since it will provide plenty of opportunity for various people to dip their ladles in, just as every government run program has done in the past. More debt, and more inflation. Not to mention lower quality for all the programs. Will government actually fail the students who can’t meet the standards? Remember, they vote also. That is one thing politicians always remember.
Richard Olsen May 3, 2017
The true intended purpose of the student loan programs had nothing whatever to do with the “American dream” or with education. Our compulsory public schooling never was intended to educate anyone. As federal “research grants” multiplied to colleges, federal control of the curriculum took it over, with education taking a back seat and eventually became almost as useless as the prisons our children are forced to suffer through. All schooling in this country now has only one real purpose. That purpose is to create a class of indentured servants, wage slaves and cannon fodder for the corporate criminals and their military puppets as the seek to rule the world as lords over the penniless serfs they have created.
Bill Dunn May 3, 2017
These loans also carry high interest rates supposedly set by the government. I say supposedly because we can’t get any details from the loan servicing company. My son is struggling to pay back his loan at a 7% interest rate. He can barely make a dent in the principal after paying the interest each month. One would think that it would be in the best interest of the country to actually help these kids educate themselves and become active and productive members of our society. He graduated law school thinking that he would start off at some three figure salary but ended up working for the local District Attorney. There is a 10 year rule where the loan would be forgiven for what are considered public service jobs but there is no partial credit on that either, it’s 10 years or nothing. I do not have a problem with paying some interest on a loan but why it has to be so high is beyond me. We are currently looking to refinance at a lower rate and with me co-signing there are some prospects, fortunately.
johnfromojai May 3, 2017
Martin Luther King got it right; a country that spends more on the military than on social needs, is in danger of spiritual bankruptcy. He might have added economic bankruptcy since 60% of our discretionary budget goes to the bloated, destructive military. That is money that could go to education and health care
.
If you see an alternative news source that supports medicare for all and expanded education, watch them. Examples are Jimmy Dore, Democracy Now, The Young Turks, Glen Greenwald, Noam Chomsky, KPFK, and Global Research News.
If you see a politician or party that supports expanded education and healthcare, support them. Bernie Sanders, Jill Stein and the Green Party are awaiting your support.
Chuck Burton May 3, 2017
And a People who let social needs become a government obligation are in MORAL as well as Spiritual bankruptcy. They have sold their souls to political Satans.
mjk90620 May 3, 2017
If Democrats want to set up communes and support them with their members,that would be OK.Sander and other fascists want to steal from others to support their dreams.Not a moral option.
Rick Mondale May 12, 2017
I wish that being harmful was illegal, rather than punishing disobedience. The schools are on a major building program. They are Gold Plating everything. JMU is eating up all of the property downtown, and now the city wants to build a second High School. Price is $100 Million, for 1000 students. Why so expensive? Because the Architect gets 15% of the building price. Tax payers must pay $100,000/child for a monument to Union Teachers.
Paul Friedrich May 3, 2017
There is another consideration with respect to student loans, Mike. Many of those in default probably think they will escape through bankruptcy. If so, they need to reconsider as student loans cannot be dismissed in such action.
When they reach the point of filing for social security, their student debt, including more than forty years of interest charges, will be repaid through garnishment of their social security benefits. There is no escape from that
If the do-gooders aren’t successful in electing congressmen who will simply absorb these loans into the national debt, they will get another chance to bailout the dummies at age 65.
Chuck Burton May 3, 2017
And if they still owe when they die, it will come out of their estate – if any.
Richard Daschbach May 3, 2017
HELP AMERICA THINK AGAIN!
Bud Wood May 3, 2017
The covering of student loan debt is not for “higher education”: It is a pay-off for political support by people in academics.
robert d Owen May 3, 2017
I feel that they should come up with program where College students could obtain or get jobs after graduation in low income or rural areas or the “Peace Corp” or “U.S. Armed Services”and spend 3 or 4 years living, working in those areas. That would eliminate their debts and help those communities or countries. That is how I paid for my law school. After 4 years I had no debt. Everybody was a winner. Nurses, Doctors, Lawyers, Business, Engineering all can work in those areas. So the student gets an education and helps people, maybe doesn’t get live the wild life but grows up and is ready for the real world.
mjk90620 May 3, 2017
OK,as long as taxpayers don’t get stuck with the loan.If some private companies want to accept services for debt,that would be OK,but not through some make work govt nonsense.
robert May 3, 2017
I do not understand the evolving attitude toward debt in the American population. It seems like many people do not consider it a personal obligation to pay off debts any more. They seem to think it should be someone else’s problem. We put 4 kids thru college and I had to take a second, low -paying job to work nights and weekends to earn the extra money to pay off the student loans. But we did it and we are proud of it. Where has the American pride and ‘can do’ attitude gone?
Steve H May 3, 2017
I’m proud of you Robert. In this day and age where most people think society owes them everything, you are a rare example of self determination. Nice to see there are still those who recognize their responsibilities. I’m sure your kids are proud of you.
Jason Mart May 3, 2017
So what is your investment advice in light of this situation. how do we proceed. Short something? Buy miners?
Marc May 3, 2017
The bigger problem Mike, is it will only be held accountable when all the various parties associated with this colossal debt step forward to admit failure. I seriously doubt that will happen in the age of irresponsibility. The institutions should be held responsible for this statistic. If they actually cared about their students this would never have happened. However when football programs, basketball programs and other perks trump education then this is what you get. Would a corporation be allowed to amass a trillion dollar debt? Not bloody likely but yet educational institutions are. On the back of their students. Seems financial institutions and educational ones are the very worst at this type of client screwing. However when no one is accountable what does it matter.
mjk90620 May 3, 2017
So,these “KIDS” aren’t old enough to be responsible for taking on debts.Maybe there shouldn’t be any loans,unless not backed by govt.I don’t care if anyone wants to loan someone money,but don’t count on govt(taxpayers) to cover it.I’ve read that they don’t even have to pay back more than some small % of their yearly income and the rest is forgiven after some years.You are correct,that we live in an age of irresponsibility.
B.D. May 4, 2017
I tend to agree. But on the other hand I remember how in my 40’s I had to stand in line or miss events I couldn’t afford and lifestyle while student aged people seemed to have money to burn at all the hot spots at the height of the recession. Remarkably, that was the 2006 to 2012 student groups pointed out in the article. I can’t let them off the hook for that level of devil may care conduct, but by the same token the institutions themselves are a racket and actively sell this debacle even now. As for athletics, that is pro sports at this point and should not even be tolerated.
Rick Rhodes May 4, 2017
175 Million Dollar hidden slush fund found in an audit for the Universities of Ca. Janet Napatano is in charge. Liberal California and Obama crony. When are we as a country going to wake up?