The Next Financial Crisis: Student Loan Debt
Student loan debt has reached nearly $1.4 trillion USD ㅡ That’s more than the combined market value of Microsoft & Facebook
Financial Crises ㅡ An American Reality
Past Economic Crashes
1929-1939: Great Depression
Fall of global economy after stock market crash in 1929
25% unemployment at its peak
Took until WWII for US economy to fully recover
2007-2009: Great Recession
Caused by collapse of the housing market
8.7 million jobs were lost between 2007-2010
US economy still facing ramifications of the crash
Today’s Growing Crisis: Student Loans
Soaring Costs
2006-2016: The overall cost of college rose 63%*
88% increase in textbook price
51% rise in cost of student housing
Tuition costs rose more than 3X in the past 30 years
Public four-year institutions per semester*
1987: $3,190
2017: $9,970
Paying More
2001-2016: Student loan debt increased nearly 4X
$340 billion to more than $1.3 trillion
The average new graduate owes $28,500
But not all debt is made equal
Women make up 56% of college enrollees, but account for more than 2/3rds of all student loan debt
Owe $2,700 more than men upon graduation*
Falling Behind
The average loan payment is $393 per month
That’s $4,716 per year on a 10 year payment plan
Young adults in particular are struggling to keep up
Many have to defer their loans
Gen Z: 77%*
Millennials: 26%
Life After Debt
“[Millennials] have been scared off debt, and for good reason. But it also means less spending to keep money moving around and the economy going” ─ Joseph Hogue, CFA economist and writer for PeerFinance101
Not Buying a Home
Home ownership has decreased among 25-34 year olds
Baby Boomers: 45%
Millennials: 37%
83% of people 22-35 who have not bought a house blame their student loan debt
12 years: how long college graduates with debt to have to save for a 20% down payment based on median home prices
Un-Stimulating the Economy
Millennials are spending less on discretionary purchases in order to pay for necessities
47% of Americans are putting off buying a car
1 in 7 Americans are waiting to get married
Spending by 18-34 year olds is down $19 per day from 2008
No New Businesses
By age 30, millennials are less likely than previous generations to start their own business
Baby Boomers: 7%
Millennials: 4%
42% say they do not have the financial means to start a business
What Retirement?
31% of millennials say they cannot afford to save for retirement
29% have less than $1,000 in savings
24% have no savings at all
11% of recent graduates believe they will never be able to retire
Less consumer spending results in a lack of stimulated economy and critically slow financial growth
Overcoming the Crisis
How does America solve the problem of the impending financial crisis?
Understand the Loans
For those who already have student debt, there are options available to make life with student debt easier
Income-based repayment
Payment based on income rather than loan amount
Affordable monthly payment, avoid deferment
Consolidation
Combine multiple loans into one for
Only one payment, lower interest rate
Change the Loans
Increase repayment period
Americans are given 1/3rd of the time to pay back their loans than in other countries
England: 30 years vs US: 10 years
Expanding the time given to repay loans would decrease the monthly payments but add more interest
Offer refinancing of loans
2013: Congress lowered interest rates — but those who took out loans before then were not able to take advantage of the new rates
Pre-2013 rate: 7%
2018 rate: 5.05%
Lowering the interest rate of a loan even a few percentage points could save the borrower thousands of dollars over time
Cancel the Loans
There are more radical solutions to the debt crisis that would entirely change the system as it exists
Federal loan forgiveness
Canceling all student debt would increase GDP by $86 – $108 billion USD per year for the next decade
Would add 1.2-1.5 million jobs to the economy
Forgiving all loans would result in consumers having and spending more money on goods and services, but would also raise taxes for everyone
Federal loan forgiveness is currently only available to those in certain careers, including nurses and public school educators
Free public colleges
The precedent exists — countries such as Germany and Denmark have free public universities
$47 billion: estimated cost per year of Senator Bernie Sanders’s 2017 College for All Act
States such as New York and Tennessee are already experimenting with providing free college tuition to in-state students
With no tuition costs, the amount of money needed to finish college would decrease dramatically, freeing graduates from the burden of overwhelming debt
How will the US overcome the financial crisis?
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