Student Loan Debt


In 2012 the total U.S. student loan debt surpassed $1 trillion, which is more than the total credit card debt of all Americans and higher than the entire GDP of Australia. A majority of the increase in student loan debt has occurred in the last 12 years, growing from just over $200 billion in 2000 to its current $1 trillion in 2012, increasing at a rate of $2,853.88 per second. However, while college graduates are taking on more debt to pay for their education, employment rates and wages in the U.S. are not growing to match this behavior. This combination of high student debt and low earnings potential after school is affecting many aspects of college graduates' lives.

The increase in student loan debt can partly be explained by the 38% increase in college enrollment that took place between 1999 and 2009. Since more students are going to college today, there are also more students borrowing money to pay for their studies. Rising tuition costs are only one of the biggest contributors to ballooning student debt, however. The average college tuition in 2012 was around $20,986, which is almost twice as high as tuition rates in 2002. In general, the cost of education continues to grow faster than the prices for all consumer items, as well as healthcare. As a result, many students are taking out larger loans to pay for their schooling.

On average, some 65% of all U.S. students now graduate with debt. The average student loan debt at graduation is $23,300, while the median is $12,800. The top 1% of all borrowers owe over $150,000 apiece. These numbers may increase if proposals to cut government-sponsored financial assistance programs for low-income undergraduates, like Pell Grants, are passed into law. Without government assistance, many students may decide to take out even larger loans to pay for their education--or not go to school at all.

Slow wage growth is another important factor that is currently contributing to rising student loan debt. From 2006 to 2011 the median weekly earnings of graduates over the age of 25 increased by only 10%, compared to a 28% growth in average student debt. While studies show that people with bachelor's degrees earn on average 84% more during their lifetime than high school graduates, an increasing number of graduates are unable to find adequate employment and are falling behind on their student loan payments. Today, 1 out of 3 graduates takes a job that does not require a college degree. And two years after graduation, 45% of college graduates earn $15,000 a year, about $800 less than the average full-time McDonald's worker.

As a result of these low earnings, 1 in 4 college graduates have past due balances on their student loans which leads to around $85 billion worth of student loan defaults every year. Graduates from for-profit schools are the most likely to default, with those from public schools coming in second followed by graduates from not-for-profit schools. However, unlike other forms of debt, student loans cannot be eliminated by declaring bankruptcy. The federal government reserves the right to withhold wages, tax refunds and Social Security payments to recover unpaid loan balances from graduates who have defaulted on their payments.

The increase in student loan debt has also had an effect on the lifestyle of college graduates. For instance, high levels of student debt are causing an increasing number of graduates to delay the purchase of their first home. In 2011, people aged 29-34 made up only 9% of first-time home buyers compared to 17% in 2001. In fact, 85% of college students move back home after they graduate, while 14.2% of 25 to 34-year-olds still live with their parents. Additionally, surveys indicate that 14% of college graduates say that they delayed getting married because of student loan debt while 21% say that they postponed having children for the same reason.

Further Studies

If you are interested in the numbers behind the growth of student loan debt, you might find the field of finance interesting. A finance program will prepare you to understand how interest rates and debt work as well as how to manage large sums of money. Similarly, the study of economics will teach you how to assess the costs and benefits of a college education, providing you with insight into the pros and cons of investing in a university degree. However, if you would prefer to study the public policy that influences federal student loans, the field of public administration will help you understand how issues like interest rates and loan defaults are affected by state and federal legislation and regulations.