When you hear the words financial crisis, what comes to mind? It might be the 2008 market crash or even the most recent 2020 bear market spurred by the coronavirus. Student loans might not make it to the top of the list, but we are here to show you why they should.
The scope of student debt and its long-term financial impacts affect families in profound ways. The ease of obtaining funding coupled with a lack of understanding by the borrower can lead to financial mistakes that follow students and even their parents for the rest of their lives.
The weight of student debt has been mounting for years, and not unlike the market crashes of years past, with a slight whisper, could all come tumbling down.
Our team works tirelessly to provide advisors with the tools, resources, and education necessary to stop the student loan crisis from throwing a wrench into the financial future of their clients and society at large.
Significant progress can only be made when starting from a strong foundation. Today, we are going to build that foundation by bringing readers up to speed on the real numbers burdening borrowers.
Student Debt in America Today By The Numbers
2020 has been a record year on many fronts and student loan debt is no exception. Education data estimates that student debt has toppled to a staggering $1.68 trillion and grows 6 times faster than the U.S economy. If you think that this hike in debt correlates to inflated tuition costs, think again. This same source also cites that the debt growth has outpaced tuition increases by 353.8%.
Student loans also snag the second-highest consumer debt category, only trailing mortgage debt. As you can start to see, college funding impacts a considerable portion of the country.
Student debt plagues 44.7 million borrowers and 54% of college attendees need loans to supplement education costs. It’s also calculated that each borrower carries an average of $37,584, a figure the Department of Education estimates will take 20 years to repay.
While debt is prevalent for borrowers in their 20s, those in their 30s shoulder the heaviest student loan burden averaging a $42,600 balance. Borrowers aged 30 to 44 bear 49% of the national student loan debt balance, further illuminating the long-term impacts of education costs.
Numbers don’t lie, and these figures certainly demonstrate the widespread need for proper education planning throughout the country.
Student Debt Through The Years
When trying to make sense of our current situation, it’s useful to examine how we got here in the first place. In the last decade alone, student debt has increased by 109% from $722 billion in 2009 to $1.6 trillion in 2019 according to Federal Reserve data.
The student loan crisis that we know today gained the most traction in 2010 when it surpassed both credit card debt and auto loans. By 2012, student debt hit the $1 trillion mark, and it’s skyrocketed ever since. But it hasn’t always been this way. To better understand this connection, let’s take a closer look at how the cost of college has changed over time.
Looking at more recent data, Market Watch found that the cost of a degree increased by 161% or $63,973 since 1987. What’s more, while tuition costs blew through the roof, salary increases haven’t been able to keep pace.
When analyzing data from 1987 and 2016, the average annual growth in wages amounted to 0.3%, whereas the jump in tuition doubled during that same period, meaning the cost to attend college grew 8 times faster than wages.
As you can see, the student loan crisis doesn’t hinge on one factor. Several elements have contributed to our current situation:
- The rise in tuition costs
- Student’s overall dependency on loans
- Inadequate college planning
- Decreasing graduation rates
- Wages overtime
- The job market
The student loan crisis can’t be fixed with one solution, rather it’s a holistic and comprehensive effort to change the way the country approaches student debt. That will take collaborative and concerted work to reach that goal.
Future Debt Projections
Traditional college planning advice encouraged students to work their way through school to offset the cost of their degree. While that advice may have prevailed in the past, now the situation is much more nuanced.
For today’s students, it’s rare, if not impossible, to amass enough savings through high school, summer jobs, and on-campus employment to cover the full cost of tuition, fees, room and board, books and supplies, and more, which makes debt more prevalent and widely accepted. But if we continue on this path, the debt crisis will only get worse.
Should the rise in student debt continue, Saving for college projects it will climb to $2 trillion in 2024 and $3 trillion by 2038. We must take action now and exercise meaningful steps to end the student loan debt crisis.
At College Aid Pro, we are passionate about helping advisors and their clients take control of education planning. When you can do that, higher education can help advance your career not derail your financial goals.
Stay tuned for part two of our student debt crisis series where we aim to provide more insight into debt repayment options.