It is no secret that education in the United States is becoming increasingly expensive. Today, one year in college could easily cost the average household a third of their annual income or more. Although student loans have originally been devised to help students cope with rising costs, the total student debt owed by millions of Americans has become a separate national crisis. Though taking out loans may help students get through school, the effects of loans on individual financial wellbeing and the economy can be devastating. Despite the crisis, the problem keeps on growing with no clear solutions in sight. In this post, we look at student loan statistics for 2019.
A student loan is a loan taken out by a student or a family to finance higher education. There are many types of student loans, but the two most common are federal loans and private loans. Federal loans are issued by the federal government, while private loans are issued by private companies. The vast majority of student loans are from the federal government. However, some loans are issued by private companies but guaranteed by the government.
The loans are then paid with interest after graduation or, in many cases, upon dropping out of college. Modes of payment vary, but the most common is by paying a monthly bill over the course of a few years to 10 years or more depending on each individual’s circumstances.
Over the past years, student loans have grown to become a national crisis. According to 2019 figures, 44.7 million adult Americans have student debt. That’s 1 in every 4 Americans. These 44.7 million owe a total amount of $1.5 trillion. Student debt is the second largest debt in the country; larger even than car loans and credit card loans, and second only to mortgage debt.
The average student debt amounts to $37,000, which represents a 78% increase from 10 years ago. The average monthly payment stands at $393, up from $227 in 2005.
Student debt balance, however, is not the same for everyone. Statistics show that 8.5 million owe $5,000 or less, 7.5 million owe $5,000-$10,000, 12 million owe $10,000-$25,000, and 8.5 million owe $25,000-$50,000. Around 8 million have debts above %100,000, half a million of whom owe more than $200,000.
Student loan borrowers are also diverse when it comes to age group: 16.8 million are 30 years old or younger; 12.3 million and 7.3 million are 30-39 years old and 40-49 years old, respectively; around 3.2 million are older than 60 years.
Federal loans are usually payable in 10 years, but research shows that degree holders on average take 19 years to fully pay off their loans.
While the figures cited above represent student debt in numbers, the effects of student debt extend well beyond financial costs. Millions of American students today are already steeped in debt even before they graduate and receive their first paycheck. Having debt, in turn, can lead to problems on the individual level. Firstly, student debt is negatively affecting the quality of life of young Americans. Paying hundreds of dollars every year imposes a financial burden on new graduates, many of whom whose debt is actually bigger than their first annual salary. These individuals are less likely to afford buying their own home, less likely to afford healthcare, and less likely to have savings. In fact, more than 40% of those with student loans have admitted that they will not be able to afford any emergency amounting to $400. Young borrowers are also more likely to defer milestones such as getting married and having a family. As these individuals face years of even decades of monthly payments, their ability to prepare for a stable future especially in their senior years is compromised. In other words, financing one’s college education with student loans can easily become a lifetime burden.
The massive student loan debt, however, has an effect on the national economy. The fact that millions of Americans are slashing their monthly budget to avoid defaulting on their loans means that public spending is decreased. As public spending helps economic growth, decreased public spending can have a negative effect on the American economy in the long run. Millions of borrowers are also on the verge of defaulting on their loans. As high as 40% of borrowers are projected to default by 2023, which heralds bleak consequences for the American economy as it stands to lose billions.
Though the student debt crisis is far from being resolved, a number of solutions have already been proposed. For one, borrowers can avail of income-based repayment schemes, which tailors the monthly payment according to income. For another, borrowers have been offered forgiveness programs. For instance, borrowers who work for the government are made to pay their monthly dues for 10 years, after which any balance is forgiven. A more drastic solution is the forgiveness program proposed by Senator Elizabeth Warren. Warren has proposed to forgive $50,000 of debt for borrowers who earn an annual income of $100,000 or less. What these recent developments show is that while the debt continues to pile up, there are efforts to curb the crisis. But unless more sweeping reforms and solutions are devised, student debt will remain a bane that Americans have to contend with.