Today I have a 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?
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MoneySmartGuides says
One of the big problems and the reason why the price for an education keeps going up is because of all of the loans given out. It's only natural for a college – for profit or not – to keep increasing their tuition when Joe and Jane can get $20K/yr from the government. Unfortunately I don't think cutting off loans for students is the answer, but their has to be some sort of middle ground.
My recent post All About Rent to Own
debtperception says
Another big factor is the fact that these loans are nondischargeable in bankruptcy and have no consumer protections. Federal loans not at all, private loans need to prove an undue hardship (basically permanently disabled) in order to be discharged. There is no risk for the lenders. When the lenders can lend any amount of money knowing it will be paid (usually 200% or more), and the gov't ups the ante, why wouldn't the schools also raise tuition knowing that they'll get the lion's share? Restore bankruptcy protections then the lenders won't be willing to lend so much and the schools will be forced to lower tuition.
My recent post So Long Six Figure Debt!
graduatingfromdebt says
I agree. Mark Cuban suggested a plan a while back that we should college loans a bit more difficult to obtain. I think he is on the right track.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
makingsenseofcents says
I agree! Getting student loans seems way too easy.
My recent post 12 Facts about Student Loan Debt that will make Your Hair Stand on End
DC@Young Adult Money says
I'm very surprised this isn't higher, actually: 10 % of borrowers owe over $54,000. If you go to a private school you need lots of assistance to get this under $54k, and there are quite a few who got little or no help from their parents.
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graduatingfromdebt says
No matter how you look at it, the numbers are depressing. I think this is the year that more and more young people will seriously consider alternatives to college if the costs are too high.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
makingsenseofcents says
College is so expensive these days, and the costs just keeps going on up. Sometimes I feel very grateful that I graduated with "only" $40,000 worth of debt for all 3 degrees of mine, since I know many people who graduate with more than that for one degree.
My recent post 12 Facts about Student Loan Debt that will make Your Hair Stand on End
@moneyperk says
For me, student loans were the very last thing on the list – I had taken care of every other debt that I had, primarily because the student loans (that I got in the late 80's/early 90's) were the lowest interest rate and they were always like that spectre in the room that doesn't say anything but follows you around like there's no tomorrow. After around 15 years, the loans were ditched because we got the laserlike focus and I was finally able to make enough money to cover. These types of loans *don't* go away – they don't settle.
My recent post DIY: Why You Don’t Need a Debt Consolidation Service + MORE
graduatingfromdebt says
I'm glad you finally paid off all your debts. For me my student loans were the biggest debt I had and I had to set a goal and pursue it with a burning desire to finally beat them!
My recent post How the Student Loan Fairness Act Could Affect Borrowers
John S @ Frugal Rules says
The thing that is crazy to me is the number of people who have them over the age of 50. That should be prime retirement saving time and they now have to deal with student loans too. I'll be interested to see how that impacts retirement trends.
Peter says
Prime retirement savings time should be in your twenties, which is even more greatly impacted by people with outrageous amounts of student debt.
But, it is a free market. You can get an undergraduate degree from a good school for under 20,000 (5k/r) if you go to the right schools. We all make choices.
graduatingfromdebt says
You are right they never go away. But for some reason I see more and more of my peers going to grad schools after several years in the workforce and I ask myself why? They are taking out more loans just to get back in the workforce with more debt? They are delaying their lives lo;
My recent post How the Student Loan Fairness Act Could Affect Borrowers
Brian says
I personally have $10K in student loans. As I have said before my interest rate is very low so I am just paying a little of the minimum and investing the rest. If the returns from the market start to go away, I will pay them off quicker. Of course I did choose a major that allowed me to get a job where paying off the loans was no big deal, but that's a different debate for a different day.
graduatingfromdebt says
I think this the smartest way you can handle them. I know it's advisable to invest your money and pay off your loans at the same time however I did it just by focusing all my efforts on paying off my student loans.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
ugauga2 says
What was your major? My husband has a Ph.D from a top-tier engineering school (grad GPA = 3.62), and he can't find a job because companies only want to hire workers on H1B visas. At least there's one good thing about being unemployed for over a year; under IBR, we don't have to pay any of his $64K in federal student loan debt right now. The downside is that we are adding 6K to the loan in interest each year.
Holly@ClubThrifty says
Those are some crazy stats! We paid of about 20K in student loans last year. I'm glad that it's behind us and I hop to steer our children away from student loan debt and toward avoiding loans altogether.
graduatingfromdebt says
We have to educate our children in order to avoid the same mistakes we did!
My recent post How the Student Loan Fairness Act Could Affect Borrowers
debtperception says
I have over $95,600 in student loan debt. 100% of my income for all eternity will go towards paying off these suckers. I went to the Art Institutes (for-profit scam school) and obviously majored in debt. I originally borrowed $79,000, have paid over $13,000 and still owe over $95,000. Biggest mistake of my life. The sad part is that I just looked into the cost of AI tuition and the going rate for a BFA at the Art Institute VA Beach location (the one closest to where I live) is $87,480 for tuition alone. $2200 for books and digital resources. $6171 program fees. $68,580 for room and board. Grand total: $164,431. And I thought my debt was a bit excessive. I can't believe students are still thinking this art school is worth that much.
My recent post So Long Six Figure Debt!
graduatingfromdebt says
Wow those are some staggering numbers. I'm glad you realized the error of your ways but I believe you pull through. Just remember this debt payoff plan can help you focus and cut off all the necessary expenses in your life.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
Miss Amanda says
Well… I spent 5.5 years getting a 4 year degree, and then went back to school for a year for a post-grad diploma. I don't regret it, but it definitely wasn't a smart decision. I'm now working in the non-profits, specifically the arts, and my student loan debt is more than 2 years salary.
I've been out of school for 4 years, and have only paid off less than 4% of my debt. Yes – that means at this rate it will take me 100 years to pay off my debt!! WTF?!?!?! How am I just realizing this now!?!?!?!!??!
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graduatingfromdebt says
I'm glad you are realizing it now before it's too late. Sadly, I know a lot of people who are just unaware of their financial reality and never end up changing.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
Miss Amanda says
Unfortunately I thought I *was* aware!! Whooops…
My recent post It’s Going to Take Me 100 Years to Pay Off My Student Loan
Tina@MyShinyPennies says
I had $17,000 in student loans upon graduation from law school in 2009 and have thankfully paid it all off. It's crazy to think that the interest on the loan was 6.8% which is almost double my mortgage interest of 3.75! I wish there was more education provided so that students can make informed choices before signing away their future earnings.
My recent post Home Purchase Considerations Beyond Price
graduatingfromdebt says
I am sure that was a private loan right? Sadly interest rates for federal loans are set to double later this year: http://www.graduatingfromdebt.com/2013/04/23/stud…
My recent post How the Student Loan Fairness Act Could Affect Borrowers
ugauga2 says
No, federal loans for grad school are 6.8% and have been for a long time. 🙁
Kyle@DebtFreeDiaries says
I personally took out about $10,000 in loans and still owe about $9,800. Not making too much headway right now, but after we pay off our smaller debts we'll attack this hardcore. My girlfriend owes somewhere between $25-30,000…I think.
My recent post The First Spark of Interest in Personal Finance – Part 2
graduatingfromdebt says
Attack this with a burning desire and a sound plan and you can beat this. Good luck!
My recent post How the Student Loan Fairness Act Could Affect Borrowers
CrazyTragicAlmostMagic says
I was almost afraid to read this because my student loan debt, which is still growing until Dec. 2014, makes me crazy. These numbers are staggaring though. It's sad that getting a higher education comes at the literal cost of financial misery.
debtperception says
If you can afford to, pay the interest before you enter repayment! When you enter repayment any unpaid interest will be capitalized, added to your principal and you'll be paying interest on that interest! That's how my $79,000 grew to over $96,000!
My recent post So Long Six Figure Debt!
graduatingfromdebt says
It really doesn't have to be that way. There are ways to remedy this. If going to private college then you might not. But if you are going to a state school where is tuition is more affordable you can work while in college, apply for scholarships and look for grants as well. There are literally hundreds of grants that go unclaimed. I put together a list of all the state grants here: http://www.graduatingfromdebt.com/2013/04/03/a-li…
My recent post How the Student Loan Fairness Act Could Affect Borrowers
jbutler1914 says
I owe over $50,000. I did everything the so called right way. I went to school and took out a little bit of loans. I got messed up because of the job market in 2008 & 2009. Late fees and interest screwed me up big time. I have finally gotten on track but the private loans are tstill he worst.
My recent post Completing the Fafsa
graduatingfromdebt says
There are costs and benefits of going to college. For some and an increasing portion of the population in the U.S. the costs are starting to outweigh the benefits.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
makingsenseofcents says
I agree Glen! It seems like many people go to college because that's the next "step." However, it doesn't have to be! W didn't go to college and is doing great for himself.
My recent post 12 Facts about Student Loan Debt that will make Your Hair Stand on End
graduatingfromdebt says
That's great. Hard work is the most important aspect in paying off these loans.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
graduatingfromdebt says
I also graduated around the same time and I couldn't find a job for 7 months. I swear that adversity I went through put me in the right direction and I have not looked back since.
My recent post How the Student Loan Fairness Act Could Affect Borrowers
SavvyFinancialLatina says
The numbers are staggering. I'm very happy we didn't graduate with any student loans. I recommend students apply for scholarships, and work part time while going to school. Only use loans for tuition purposes. I met so many people that took out the max student loans then went and got a fancy car, new iphone, vacations, etc.
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Alex says
I lucked out in that I didn't graduate with student loans, but the numbers are indeed terrifying – especially when you add in that students really aren't given much of a formal education in what these debts mean for them (until they have to learn the hard way after graduating).
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Ayla says
I have lots of student loan. Part of it was from undergrad and then the other part was from graduate school that I didn't finish. I have consolidated all of my federal loans so that helps with the payment however my private loans are very unyielding. The biggest issue I have right now is not being able to find a job that can pay the bill. My federal loans are on a income-contingent plan which helps a lot. It's a very stifling feeling when you work as much as you can but you still don't have enough money to pay for basic needs. I just try to stay positive and continue the search for a better paying job. I've been looking for almost 2yrs and have not found one yet.
Lindsey @ Cents says
This is a well-researched article with some pretty scary facts to share! I've heard terrible things about Sallie Mae from my student loan compatriots and I'm not even American!
I am still paying off my student loans and likely will be for another four years which will leave me at 40. Le sigh. Even though I borrowed too much over the years, I think my life would be a lot different without my education – and I'm not sure it would be for the better.
Cheers and thanks for the great post!
Lindsey
My recent post Don’t be an A-hole: My new mission statement
tony says
I owe over $250,000 in loans, original amount borrowed was $120,000 interest keeps getting thrown into principal. Interest grows at $2000 a month. I cant find a job, seriously becoming suicidal over this.
Michelle says
I'm sorry Tony. This really makes me sad. I hope you find a job soon.
Squirrelers says
I had to take out student loans for grad school, and couldn't stand it. It's only when you actually take on debt and then have to face the burden of paying it back that one can appreciate how uncool it really is. That burden isn't fun, with the pressure involved.
Nicole says
It seems to be very hard for all of you with so high student loans. Here in Germany we don't have to pay so high loans. I "only" have student loans around 8000€. It's not so high, I cannot imagine to have loans over 250,000$ – this is really bad.
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Peter says
These are some scary info. I think they should only give loans out for particular education that is sure to find a job. Like nuclear physics, doctors and mechanical engineers. I meet so many students with BS (Bull S*#t) degrees with loans and they can’t find a job, let alone know what they want to do with their life.
It’s just not smart to get a degree in economics or sociology on loans.