Something that is resurfacing in the news lately, but has been bothering me a long time now, is the total student loan debt that is currently owed in the country. The total student loan debt now outstanding is about $1,596,100,000,000.  The amount that is now 90 days late or more, loans that are really in default, has now topped $166.4 billion, or over 10.4% of student loans.  Truthfully though, I am inclined to include loans that are over 60 days late, which means that the borrower has now missed the current payment, the prior payment of 30 days ago, and the payment prior to that of 60 days ago. I am also inclined to include loans on forbearance and post-graduation deferral as well (still in school and deferred is not a default yet, according to the terms of the student loan promissory note).

Just a little bit of background here: for the average student who attends college in the state they live in, the cost of tuition alone is now nearly $10,000 per year.  That doesn’t include books, dormitory, food, and other periphery expenses like road trips and bad beer.  If the student lives out of state, the tuition soars to nearly $24,000 for a public or state institution like Penn State, Rutgers, SUNY, or University of Delaware, and over $32,000 for private schools like Brandeis, Villanova or the Ivy Leagues. If you include the other costs as mentioned, you’re probably looking at $50K per year or more, on average, for those private schools. Without grants and scholarships, and without being able to pay out of pocket, you’ll be staring down the barrel of a student loan shotgun in excess of $200,000 for that private, out of state college your kids dream of attending.

If we look a little more closely, nearly 70% of students graduate from college with an average of $30K in debt.  Add parents on top of that for an average of $35K more. And nearly 45 million Americans owe money for student loans. The average monthly payment straight out of college? Nearly $400. And as the Fed has been raising interest rates, the average for student loan is now up to 5.05% for this school year, up from 4.45% a year ago.

Of those loans that are past due, that $166.4 billion, that only includes loans that are not in forbearance and not on deferral. Those in deferral or forbearance total another $235+ billion, which means if not for these programs that allow students to push off paying their loans, over $400 billion or over 25% of all student loans would be in default! And by the way, all these numbers, except the total amount of student debt, it only includes undergraduate studies. Only the total debt of almost $1.6T includes graduate studies, meaning that if you include graduate student loans, the default rate is even higher.

Here’s the big picture of it all…we’re sending our high school graduates off to college, only to come home in 4-5 years with so much debt and without enough income, if any, to service that debt, so much so that 1 in 4 students can’t pay back the loan and defaults. It's a pretty simple equation. When choosing between paying for rent and groceries or paying for student loans, which would you choose on a tight budget from paycheck to paycheck?

By comparison, the default rate on home loans is now about 1%, and during the height of the Great Recession it was just over 4%. And about those federal programs that forgive student loans for becoming a civil servant? 1.7 million people applied to that program in 2018, but only 55 were awarded loan forgiveness. In other words, it doesn’t really matter that college grads, on average, earn an extra $1750 per month versus non-college grads.  They can’t pay off the debt regardless.

And hey, when’s the last time your high school senior who went to the vo-tech program for a trade like auto mechanics, and then went into the bank to apply for a personal loan of $15-$20K to open a business, and the bank granted the loan? Here you have a person with a defined skill set and some experience with that skill set, and they can’t get a small loan to open a business, yet there’s a 25% chance or higher that the bank won’t get paid back if the same kid goes to college.