Student Loan Debt Hits $1.5 Trillion — What Does This Mean?

Student loan debt in America — it’s become a punchline. As of 2017, the average student loan debt for graduates was $39,400. This number has been growing. Student loan debt recently hit $1.5 trillion total, with women holding $860 billion of the debt. And though lowering college tuition may help with reducing future student loan debt, it isn’t going to change the reality for many Americans.

Barring some unusual circumstances, student loan debt is inescapable. Student loan debt resides in a different area from other debt: it cannot be discharged via bankruptcy and it can be easily garnished from tax returns. Though students do have some recourse — such as deferring their payments or getting income based tax payments — this just extends the amount of time they spend paying off their student loans.

Unfortunately, this has an adverse impact on the economy as a whole. When student loans are high, students are not compelled to do other things to invest in the economy — such as purchase a home or start a business. With student loans looming on the horizon, new employees are concentrated primarily on removing their existing debt, rather than investing in their retirement accounts or planning for the future. Long-term, this could stifle the economy, especially as salaries have not been increasing related to the building costs of higher education.

In some cases, student loan debt is essentially mitigating the upward mobility that higher education is intended to provide. Long-term financial health may not be positively impacted by a college degree if a student has to sign up for significant student loans to acquire it.

In recent years, more women have been acquiring higher education than men. Even accounting for this, they are borrowing disproportionately; they are taking on more in student loans than their peers. Women on average owe $2,740 more than men when they’ve completed their Bachelor’s Degree. Women are also taking longer to pay back their loans, partly because they ultimately make less than their male peers.

Studies have shown that women make 27% less than male counterparts even after finishing their degrees. Regardless of why this occurs, it makes an investment in a college degree less worthwhile for women, as they ultimately end up accruing more in interest. Further, debt appears to disproportionately impact individuals according to race, with black and white students both taking on substantially more debt than Asian or Hispanic students.

These buying sectors may become disenfranchised, as the more debt an individual takes on, the less likely they are to be able to build a more solid financial future.

As mentioned earlier, it’s nearly impossible to ever discharge student loan debt. Nearly impossible, but not completely impossible. Borrowers are able to include student loan debt in a bankruptcy filing, if they can show that they will not be able to pay back their debt without entering into poverty. They must show that this is a situation that will continue for them, rather than a temporary one. Those who are disabled or who are otherwise unable to work will have an easier chance proving this, as will those who have exceptionally high amounts of student loans.

Other than this, students have the option of consolidating their loans at lower interest rates, so they can pay it off faster or achieve lower monthly payments. Students may be able to get their debts forgiven if they work for government or non-profit organizations for a certain amount of time, making payments throughout. So there are options, but the total debt burden of the United States remains serious.

60% of Americans currently believe that college educations should be tuition-free, especially in a new economy in which a Bachelor’s Degree is often a requirement for professional employment. Nevertheless, millennials are currently experiencing the after effects of costly student loans combined with entering into the workforce during a depressed economy, which is leading directly to highly publicized issues such as dying restaurant chains and falling real estate markets.

Regards,

Ethan Warrick
Editor
Wealth Authority