12 Facts about Student Loan Debt that will make Your Hair Stand on End
Today I have a guest post from Kevin and it’s all about student loans. Don’t forget to read my My $38,000 Student Loan Payoff Plan if you haven’t yet.
Getting a college education in the US today appears to be a double-edged sword. On the one hand, graduates are in a better position than those without a college degree when it comes to getting jobs. Yet with the cost of education rising, tens of thousands of students are graduating with piles of debts they spend years paying off.
Sometimes they are not able to pay, with unemployment rates remaining high and stagnant. Dogged by debt collectors, they resort to public protests and hiding. To add more props to the terrifying reality show of student debt, here are 12 facts about student loan debt that will make your hair stand on end.
1. High debt and fear of loans
Two thirds of college graduates from universities across the country in 2011 had debts from student loans, an early 2012 study by The Institute for College Access & Success revealed. There is a total of $1 trillion in outstanding student loan debt and the average debt is estimated at $26,600 per student. Fear of such high loans can keep students from receiving the education that they deserve.
2. Increase in loan averages
What is worrying is that the loan average for the country has risen by 5 percent from $25,350 in 2010 to $26,600 in 2011. This reveals the significant rise in the cost of education. In fact since the 1980-1981 academic year, the average tuition rate for 2-year and 4-year colleges has gone up by a whopping 144.6 percent.
3. High unemployment leading to loan default
As if the high cost of education isn’t bad enough, unemployment remained high through 2011 at 8.8 percent. This means that many students leaving college end up with no jobs and a high burden of debt. They enter into a life of debt slavery on leaving college and many quickly fall into default with no means of refinancing. In terms of statistical figures, one of every six student borrowers is a defaulter.
4. Total private loan debt at $150 billion
According to reports, outstanding private loan debt among American students stands at a whopping $150 billion. These private loans are issued by banks, schools, non-profit institutions and agencies sponsored by the state, as well as other financial bodies. They are also the least desirable types of loans with the highest costs.
While federal student loans offer the lowest interest rates and borrower-friendly repayment programs, many of these federal loans cannot be accessed by those that need them the most. For instance, students with fewer resources in low-income groups who have defaulted with federal loans in the past are not eligible for federal student loans.
5. $8 billion of loan default
The Consumer Financial Protection Bureau (CFPB) estimated in a report published in October 2012 that of the private borrowers, there are more than 850,000 individual private loan defaulters, with a total default amount of a staggering $8 billion.
6. Poor loan servicing
The state-run and non-profit financial institutions that offer private loans send third-party collectors to recover the debt amounts. These debt collectors cash in on the plight of students who are strapped for cash. The New York Times reported in September 2012 that students dogged by collectors are often forced to change their phone numbers multiple times to avoid them. The CFPB reports that student complaints against private student loan companies include complaints of being unable to contact them at times of need, too much paperwork and delay in correcting errors among others.
There are 7 major companies that hold a monopoly in the area of state and federal student loan services. These include Sallie Mae, American Education Services (PHEAA), Citibank, Wells Fargo, JPMorgan Chase, ACS Education Services and KeyBank. Of these, Sallie Mae has received the highest number of complaints at 46 percent (of 2900 cases it handled in less than 7 months in 2011) followed by PHEAA at 12 percent. KeyBank has the least number of complaints against it.
7. Bigger costs than credit card debt
The government usually recovers 80 cents for every dollar on defaulted loans. This is much higher than credit card default rates – lenders for defaulted credit cards are lucky if they can recover 20 cents to a dollar. This is a problem because the government doesn’t have any incentive to prevent the defaults in the first place.
8. A problem for all ages
It’s terrifying for many how long the burdens of debt can be carried forward or how often parents are taking out loans for their kids. A New York Federal Reserve Bank (FRBNY) report published in early 2012 showed that 5 percent of all borrowers are over 60 and 11.8 percent are aged between 50 and 59.
9. Bigger than most other consumer debt
Total student loan debts stand only second to mortgage loans in the US. Delinquency rates on in the case of student loan debt is almost double that of any other consumer debts. According to the FRBNY report, 21 percent of all student loan debt is delinquent.
10. 10 % of borrowers owe over $54,000
According to the FRBNY report, in the first quarter of 2012, 10 percent of borrowers owe more than $54,000. A fourth of all borrowers owe over $28,000 and 3 percent owe over $100,000. The most unfortunate of these is the 1 percent that owes over $200,000.
11. Highest loan debts for students of for-profit institutions
This doesn’t come as a surprise, but the for-profit institutions and universities are the ones whose bachelor’s degree students have the highest loan debts. While public 4-year college graduates have median debts of around $7,960 (according to College Board reports) and around $17,000 for private colleges, the private for-profit college students have the highest loan debts at $31,190.
12. Highest debt in the Northeast and Midwest
In 2011, the state averages for student loan debt lay roughly between $17,000 and $32,000. The Northeast and the Midwest states had the highest average debts, with New Hampshire topping the list and Pennsylvania following close behind.
After having shared with you 12 facts about student loan debt that will make your hair stand on end, you can hardly expect me to say that it may not be entirely hopeless for you to get a college education despite the issues. But it’s true, it’s not so bad.
Over the last five fiscal years, the Education Department has made $101.8 billion from student loans with fixed interest rates. With the job market looking grim and the rising costs of education, there have been several protests staged across the country over 2011 and 2012. The government has taken note, and the White House plans to propose and implement a plan to benefit borrowers, by making interest rates on federal student loans proportionate to market rates.
In the meantime, students looking for loans should avoid private borrowing and look to federal student loans for help. There are some (rare) colleges and charities that will give you low or zero interest rate loans. But most of all, even if you have to spend some time shopping around for the best and reasonable loan rates offered, be sure not to give up on the education you deserve!
My name is Kevin Watts and I am the creator of Graduating from Debt. I was like millions of recent college graduates in heavy debt with very little hope. With the right attitude and discipline I took control of my financial picture and now I can say proudly that I am debt free.
How much do you have or expect to have in student loans?
What are you doing to eliminate them?
Murphy Doesn’t Care if You’re Trying to get out of Debt
Hey everyone! Today I have a post for my debt payoff series. Many of you have e-mailed me and said that you have LOVED this debt series because you are able to hear about so many different views of debt payoff stories. Glad I can keep this series alive and going! Be sure to come back tomorrow for a $40 Novica giveaway.
Hi everyone! My name is Justin and I write at The Frugal Path. I’m excited to share my path into debt today.
For the past five years my wife and I have been struggling to pay down our consumer debt. While it has always been below the amount carried by the average American household, $15,000, it still acts like a parachute on the back of a race car and slows our progress to financial freedom.
The Money Pit
As a child The Money Pit, staring Tom Hanks and Shelley Long was one of my favorite movies. The movie opens with a couple purchasing a beautiful old house. It’s perfect and doesn’t need any work, or so they’ve been led to believe. However, the sweet couple had been swindled and the house needs a complete overhaul. This isn’t a small 1,000 square foot starter home, like mine. It’s a big beautiful country house with every inch in need of repairs.
A similar story unfolded when we purchased our very first house in 2007. The housing market was softening and we thought our house was a steal of a deal, (If I only knew). It needed a lot of work. Before moving in we replaced the furnace/AC, windows, garage door and entry doors. Oh, there was also a small mold problem in the attic and we had to tear out the finished basement for the same reason (only on a much bigger scale).
We were unaware of many of these issues when we put our offer in. Most of the problems were discovered during the home inspection, but our inspector and agent told us that we were getting a good deal. They also knew we had a decent chunk saved up for the down payment and talked us into using the money to fix up the house instead.
Our gut was telling us to back out. In fact, the words came out of my mouth a few times. However, the inspector and agent “assured us” that the house was still a deal and we could ask for a reduced price. So we listened. If you’re ever purchasing a home, go with your gut feeling after the inspection. You may end up losing the inspection fee, but it could save you a lot of money.
We weren’t living above our means.
Consumer debt can be pretty vile and toxic to your financial situation. With high interest rates and no tax breaks associated with it, credit card debt has very few virtues and plenty of pitfalls.
Every so often I would watch a talk show or personal finance pundent on television interviewing families deep in debt. Often these people live far beyond their means with weekly shopping sprees, extravagant vacations and many times their houses were four or five times the size of mine with mortgages to match.
Our debt wasn’t caused by an extravagant lifestyle. It came from a home in need of repairs. Surely we were better off financially than these people.
Or were we?
I had to face a simple fact, we were in denial about our financial situation. When it came to everyday expenses, we were living within our means. But we didn’t plan for the future. When our cars unexpectedly broke down we charged it. When the roof of our lovely house began leaking two years ago did we pay with plastic or paper? Plastic please.
Living beneath your means doesn’t mean just ensuring that you have enough money to cover everyday expenses. It also requires a plan and a rainy day fund for when emergencies rear their head. If you can afford these costs on top your regular living expenses, then you really are spending less than you make.
You Need a Plan
It has taken us far longer than it should have to pay off our debt. Since 2008, every single extra dollar that we had was thrown at the debt and it was rapidly shrinking. In fact, we were on track to have the debt gone but a lack of planning continuously threw a wrench in our plans. There were several car repairs, the new roof and, well life in general kept getting in the way.
From the tail end of 2011 thru September of 2012 we had basically given up. It seemed as though we’d never get out from under our debt. I finally pulled myself out of despair and began blogging about our financial situation. It was a way to stay motivated and learn new methods for managing our money. We began putting some of these techniques to work and slowly increased side income.
Our path to financial independence is looking possible, it’s just a matter of taking the first steps. We learned a valuable lesson from our roof and no longer throw every dollar towards the debt. We now allocate a quarter of our extra cash towards an emergency fund. It may take a bit longer to pay down the debt, but if Murphy visits us we’ll have an account full of cash to rub into his face.
What obstacles have you faced with your personal finances?
How did you kick Murphy to the curb?
$7,859 in April Extra Income and Goals
Hey everyone! Happy Tuesday. I changed my mind and decided to post my April goals and extra income update TODAY instead of tomorrow. I figure that there won’t be a huge difference by missing just one day, so why not?! I did receive a couple of payments yesterday that I’ve been waiting on, and that helped increase my extra income for the month.
April was another awesome month. I wasn’t able to crack the $8,000 level of extra income just yet (this is after expenses), and I was actually $3 lower than last month’s amount. Still great to me though 
If you are looking to start a blog, don’t forget to read my post How To Start a Blog. It gives step by step instructions on starting your own. And one of my most popular posts this money was How To Make Money Blogging.
We did some wedding planning last month and booked and paid the deposit for our wedding photographer (she has SUPER cute pictures!) and also chose our wedding date. Our photographer is AWESOME and I’m glad we found her. Check out her website Harper & Brothers. The wedding will be on June 7, 2014. WOOHOO!
Next weekend my sister and I are going to St. Thomas, WOOHOOO! We’re going for 3 days/4 nights for her birthday. It’ll be a fun time and I’m very excited. We haven’t gone on vacation together since we were probably in elementary school, so it’ll be a new experience.
In April, I made $7,859 in extra income, after most expenses. In case you are new to my blog, “Extra Income” consists of all income that I make that does not include my salaried job that I have in the financial services industry. Extra income also does not include any money that W makes, as he doesn’t do anything for extra income and is mostly commission at his work (so it fluctuates every month anyways).
As I say every month in my income update posts: this is not all super easy. None of it is. I spend enough time to make this a full-time job on top of my already full-time job. Luckily, I do enjoy what I’m doing so it’s not like I’m dreading anything. The goals that we have are also a great motivator. I just keep thinking about how badly I want my student loans gone, and also how badly we want a new house next year. Read further on my Extra Income page.
This is for the month of April and after most fees and expenses (expenses were a little over $700 and include payments for staff writing on my blog and work with FITnancials, PayPal fees, etc.) being taken out. April’s number above includes a rent payment from my sister.
April was another great month. I’ve come a long way from the just the beginning of last year when I was ecstatic about $50 in extra income in a month. Don’t get me wrong, $50 is still awesome, but I never thought that I would be to the point where I am today. I look up to so many other bloggers and if it weren’t for them, I really don’t think I’d be anywhere near the level that I’m at today!
