Student Loan Debt

 

Student loan debt will be $1.75 trillion by the end of this year with much of it being for degrees that have little real value other than granting the recipient the accolade of having spent four years in a college.  They will require as much on-the-job training as if they had just graduated high school.  From where they got their degrees will matter little in the long run and can be a problem if the alma mater was Ivy League as high expectations will prevail.

The total amount of outstanding student loans reached an all-time high in 2020, at $1.57 trillion, according to Experian Inc.  At the current rate of growth, aggregate student loan debt could reach $2 trillion by 2024 and $3 trillion by 2038.

The soaring cost of college drives the growing debt. The average in-state student at a four-year public university spends $25,396 for one academic year.  Private colleges cost $53,102, with $35,801  going for tuition and $17,301 room and board.

Student debt grew 7% in 2015, 3.5% in 2016, 9.4% in 2017, 3.9% in 2018, 6% in 2019 and 11% in 2020 correlating with variations in the economy, but within this data is the tendency for colleges to expand administrative staffs and hire million Dollar football coaches.

43% of all American college students took on some form of debt and the number is growing as 54% need to borrow today. Gone is the day when the high school grad could pack his “stuff” into his old car, drive to a state college town, connect with some old friends, find a group in an approved house, look for and get a job, and get one in a local business, register, pay a few hundred Dollars in fees, repeat this act four years and one day find himself in a medieval gown listening to the honored speaker drone on seeming forever, but they eventually run out of gas and your life begins. 

27% of the loans are in default. If the trend continues 38% of borrowers will default by the year 2023 which would be a disaster in any loan situation as it suggests dissatisfaction with the rational of the product or service on which the loan is predicated.

We have examined the economics of college loans and believe the behaviors of the borrowers support the idea the product is over-priced in the extreme.  Examination of the product and employment potentials for many of the degrees reveal the product is over-priced, in some cases, in the extreme.  

In a nutshell, any discipline with “Studies” in the title is not a good value.  Any “Science” but “Social Science” is a poor bet unless you are only marking time on your way to being a lawyer.

The sheer size of student debt is a weight on the U.S. economy as well as a burden on millions who owe it. About 92% of student loan debt is backed by the U.S. government, but they mean to collect as it has been defined as “not dischargeable in bankruptcy” which makes it a political issue. Some Democratic candidates in the run-up to the 2020 presidential election suggested canceling some or all of student debt which the nation cannot afford.

For the first time in our history college enrollments are in decline so the free market will decide nonetheless one of those candidates, U.S. Senator Elizabeth Warren of Massachusetts, is still seeking action on the issue.

In September 2020 she and Senate Minority Leader Chuck Schumer of New York introduced a resolution urging the next President to cancel up to $50,000 in Federal student loan debt for each borrower.  They say that this could be done by a President’s Executive Order rather than by legislation.

Moody’s Investor Service claims wiping out student debt would yield a stimulus to economic activity comparable to tax cuts, saying: Outright debt cancellation would boost real Gross Domestic Product (GDP) by $86 billion to $108 billion per year, according to one study from Bard College’s Levy Economics Institute.

Of course, this would require adding two trillion Dollars to the national debt and no one seems to be observing how that dilutes the currency and raises prices.  In example:  In 1961 I would buy a three pound “chub” of hamburger, “On Sale” for less than three Dollars.  Now that same chub costs, on sale, $15, a 500% increase!

None of this is difficult to understand as it is all predicated on the fact that if we flood the economy with paper currency it will continue to be worth less to the point of being worthless.

Adrian Vance