Business

This Is How Student Debt Could Cripple the U.S. Economy

[Editor's note: the following is a cross post that originally appeared on Wall St. Cheat Sheet.]

As college students graduate into one of the most depressed job markets in years with more debt than ever, it’s no wonder so many of them have become delinquent on their loans. As many as 1 in 4 borrowers was carrying a past-due student loan balance in the third quarter, higher even than the Federal Reserve Bank of New York had previously thought.

How Student Debt Could Cripple the U.S. EconomyThe New York Fed earlier said that 5.4 million, or 14.6 percent, of the nation’s 37 million borrowers with student loan balances had at least one past-due student loan account. But new figures Monday show that number may be significantly higher — as many as 9.25 million of the nation’s student loan borrowers may be delinquent, with millions more struggling to keep up.

(Related: European Economy on the Cusp of Another Widespread Recession)

Fear of beginning one’s adult life with a mountain of debt may have some students dropping out, said W. Norton Grubb, a professor at UC Berkeley’s School of Education. Only 40 percent to 50 percent of students enrolling at universities end up completing their degrees, he said. All of those drop-outs end up competing for unskilled jobs, of which there are too few in the U.S., while engineering and technology jobs go unfilled for the “lack of qualified candidates.”

Skyrocketing debt may also be pushing some graduates into areas of work that have a bigger immediate payoff, such as finance, as opposed to doing what they want to do, or taking jobs that benefit society. “The debt levels are distorting what fields people are taking on,” Grubb said.

Furthermore, the New York Fed report concluded that “student loan debt is not just a concern for the young. Parents and the federal government shoulder a substantial part of the post-secondary education bill.”How Student Debt Could Cripple the U.S. Economy

Past-due balances on student loans amounted to $85 billion in the third quarter, or about 10 percent of the total owed, according to the Fed’s report. But Fed researchers said delinquency figures for student loans actually understate the magnitude of the problem, as they don’t take into account that federal guaranteed loans, which make up the bulk of student debt, typically don’t require repayment while borrowers are still in school and for six months after graduation.

(Related: Could America’s ‘Miserable’ Youth Decide the 2012 Election?)

Borrowers who are temporarily exempt from making payments for one reason or the other are excluded from the figures. If included, the Fed says the number of borrowers with past-due balances would jump to 27 percent of the total. The total amount of outstanding balances that are late would rise to 21 percent. Both figures are about double the unadjusted rates.

When it comes to private, non-guaranteed student loans, the default rate seems to be a bit lower. Moody’s Investors Service recently reported that the default rate for such loans in the fourth quarter was 5.1 percent. However, that rate double what it was before the most recent recession. Furthermore, the Moody’s report noted that some private student loan measures indicated the pace of defaults is rising. “High unemployment will keep defaults high,” the report said.

Economists vary on how the strain of student loans will impact the broader economy, but Federal Reserve Chairman Ben Bernanke said recently that “student loans are becoming a very large category of loans.” The Fed put the latest outstanding student loan balance at $870 billion. Meanwhile, credit card debt in the U.S. totaled $693 billion, according to the same report, and car loan debt totaled $730 billion.

Comments (59)

1 2
  • katiefrankie
    Posted on March 8, 2012 at 11:27pm

    My husband turned down acceptance to Rensselaer Polytechnic Institute in New York to attend a SUNY school for an associate’s degree (waste of money) and then transferred to Brigham Young University for his bachelor’s degree in Engineering, a much cheaper school. He funded his entire education on his own and only took out one student loan, which we will pay off this next month (3 years later).

    HOWEVER, I do not see any “unfilled” engineering and technical jobs – although my husband was courted by Lockheed Martin, the company ended up freezing the position due to lack of funds. Too many companies refuse to consider a resume that doesn‘t contain at least 5 years’ experience, and BYU students cannot find even UNPAID summer internships, no matter how far across the US they are willing to travel on their own dime. This economy is wretched!

    Still, students should be looking for cheaper ways to fund an education than taking out tens of thousands of dollars for overpriced schools and mimicking their parents’ lifestyles right out of college.

    Report Post » katiefrankie  
    • SekndAmendment
      Posted on March 9, 2012 at 3:23am

      Your husband didn’t try hard enough. I have one year left in my mechanical engineering degree right here in good old Provo Utah and I’ve already worked 4 internships and make $50K a year…as an undergrad. I traveled to Tampa Bay FL for my first internship with Raytheon and since then have done two more with them. Don’t forget Caterpillar heavy equipment design, I work for them part time during school. My point is this: your husband probably worked very hard in school. The problem is that the economy doesn’t reward hard work. It rewards SMART work. Rather than stress over midterms, finals, and homework…I fought tooth and nail for work experience from the day I set foot on BYU campus. When engineers graduate, we’ve all got the same degree, taken the same classes, and have similar GPAs. What is there to set them apart for hiring purposes? Work experience. That’s why Lockheed made the offer to me, and not your husband.

      In economics, hard work makes somebody else rich. You have to work SMART if you want to get ahead in life.

      Report Post »  
    • Link8on
      Posted on March 9, 2012 at 11:06am

      I graduated over a decade ago with an engineering degree myself.

      I now work in banking ( surprise surprise )

      Several of my classmates have gone into management, medicine and other areas.

      Promotion of regular engineers to management track was also common back when I worked in that area.

      Report Post » Link8on  
    • katiefrankie
      Posted on March 10, 2012 at 1:46am

      Nice try, Sekn. He graduated with a degree in manufacturing engineering, NOT mechanical, and NO ONE got the job he was interviewed for – it was cancelled due to lack of funds. In the year he needed his internship, not one company he contacted could give him an unpaid internship except a place in Murray (so he worked 70-hour weeks), and where I live now in OR, the BYU Management Society has been begging firms for anything to hand out to interns (unpaid) just so they can get experience. Engineering and manufacturing in the U.S. have really taken a hit b/c of this economy.

      You sound like a snob.

      I studied in the Humanities (I want to be a professor) and gained fluency in Spanish and Italian – that is where my jobs have come from. Fluency in a second and third language has really paid off for me and made me stand out – more college students should consider that path as they seek to become employable and not just degreed. (P.S. Live poor during and after college and save, save, save.)

      Report Post » katiefrankie  
    • StanO360
      Posted on March 14, 2012 at 12:59pm

      It matters what kind of engineering. But I look at ads in San Diego and all the jobs are for Computer Science and Electrical Engineering at Qualcomm et al. Then Biological Sciences for all of the BioTech companies.

      He should find a good job, you just may have to move.

      Report Post »  
  • psycodad36
    Posted on March 8, 2012 at 7:03pm

    No student loan bailouts ever !if obama didnt totally ruin this country,these students might have jobs ,when they could repay THEY ‘RE debt

    Report Post »  
    • carbonyes
      Posted on March 8, 2012 at 9:35pm

      Does not look promising at all.

      Report Post »  
    • carbonyes
      Posted on March 8, 2012 at 9:39pm

      Obama knows exactly what he is doing – destroying the country, and he doesn’t loose a moment of sleep over it. Lovely, isn’t it?

      Report Post »  
  • The Third Archon
    Posted on March 8, 2012 at 6:23pm

    “The New York Fed earlier said that 5.4 million, or 14.6 percent, of the nation’s 37 million borrowers with student loan balances had at least one past-due student loan account. But new figures Monday show that number may be significantly higher — as many as 9.25 million of the nation’s student loan borrowers may be delinquent, with millions more struggling to keep up.”
    And you are surprised? And you wonder why conservatism is anathema to today’s youth? Because not only have conservatives do nothing to help this problem, not only have conservatives (and when I say “conservatives,” I mean the people who represent it politically–for better or worse, they are how the American electorate can and must judge your ideology) staunchly opposed any and all proposed solutions to the problem, but they are actually ACTIVELY the CAUSE of it in the first place. The predominant CAUSE of the exorbitant inflation of the cost of higher education, uniquely in this country and outpacing cost inflation in almost every other sector, are the pro-privatization neo-liberal economics, the holy grail of modern conservatives. As a result of this commodification of education, a new generation of professional bureaucrats took over the administration, whose size has steadily increased since the widespread adoption of these policies, which is been the single largest contributor to higher educations ballooning price tag.

    Report Post » The Third Archon  
    • The Third Archon
      Posted on March 8, 2012 at 6:29pm

      But that’s fine–you don’t have to believe me conservatives. Keep doing what you have done, hold your marches, and shout angrily about how “socialist” the younger generations are. In the end, none of that will undo the damage you have done, ultimately to your own political cause. And you will be punished electorally for it–you are so ignorant about what Leftism looks like in this country, because you’ve never seen it. Always, you hear it spoken for, by those on the outside, and when a true Leftist has never held political office, it‘s oh so easy to say that they stand for all sorts of things and beliefs that they don’t. It’s more than simple ignorance–those who aren’t Leftists, have every reason to marginalize and misrepresent their views, for it makes them look good by comparison.

      But taking “your word for it” on socialism and capitalism, and a whole host of other areas of “knowledge,” is no longer good enough for many among my generation, and those going before and after. By doing nothing but being obstructionists without any compassion, Republicans only guarantee their political extinction, or at the very least banishment for a very long time. Even the most ignorant and politically apathetic voters can see the nakedness of Republican apathy and disdain for the student debt problem, and those suffering as a result of it, even if they do not realize yet how complicit conservatism as an ideology is in the problem.

      Report Post » The Third Archon  
    • Chuck Stein
      Posted on March 8, 2012 at 8:02pm

      Interesting. You see the “commodification of education” as the problem. But how can it be said to have been “commodified” when it has always been a commodity in America? Are you saying that post high school education should be a “right” that is paid for by taxpayers instead of a “commodity” paid for by the student? Just like a “right” to home ownership? As with the housing debacle, the problem with student loans lies with government interference IN A HYBRID OF SOCIALISM AND CAPITALISM. While socialism is inherently inconsistent with the liberal republic established under the Constitution, good arguments CAN be made for socialist solutions to the distribution of certain goods and services. I don’t accept those arguments, but flat out socialist approaches can at least have the benefit of being forthright in what is being done. The veneer of capitalism over a socialist program is not only deceitful, but it will never fail to disappoint.

      Report Post »  
  • diablamonkey
    Posted on March 8, 2012 at 6:16pm

    If the schools actually taught critical thinking then the graduates from high school would actually be able to look at a schools class offering, look at the job market and then decide what classes to take so they could then get a job-it is not rocket science but the crap universities offer to take your money-its criminal-but it is about the feds taking over yet another segment of the economy- as they continue to take it all over- education, auto, agriculture etc. we lose power and they gain even more- I think that is called communism- wake up and vote Ron Paul

    Report Post »  
  • marcus_arealius
    Posted on March 8, 2012 at 5:48pm

    Let’s see what we have here. Students voted in the Whitehouse idiot. Job creation simply sucks. College is a YT thing anyway.. so getting in deep doodoo debt is what the idiot wants. Need a bailout kids? Just do what the idiot regime wants you to do otherwise flounder in debt. Then we have the outrageous cost of tuition. Why? Easy loan money.. just like easy mortgage money. Why? Democrat policies (Frank-Dodd-Clinton).

    Too simplistic? Absolutely. Then again, no explanation can be complete or perfectly accurate. Today’s kids facing a decision to get a 4 year degree or not are in a tough spot. However back in the Kennedy-Johnson war era, if you lost your 2-S deferment, were male, you got drafted and possibly killed, crippled or worse. So today’s kids can defer their college until something changes in D.C. or the industry they’re interested in improves. So shut the hell up and deal with it. Thank God you don’t have to face the draft, and females should have been subject to the draft all along. (This ain’t a sexist statement, you females want to be in combat now don’t you??).

    Report Post »  
  • MainStreet
    Posted on March 8, 2012 at 5:29pm

    The government has created this crisis with its “do everything for everybody and get re-elected mentality”. With the government guarantee of these student loans, their influence on the banking system to lend without caring about repayment, colleges and universities raised their fees exponentially to get their share of the cash cow. Students have a right to be angry at themselves for falling for the liberal tactics that will wed them to the big government cause for the rest of their lives. Unless they can miraculously somehow recover some sense of self worth, they will never be able to truly be free of this overreaching oppressive Democrat hegemony.

    Report Post » MainStreet  
  • Black Midge
    Posted on March 8, 2012 at 4:51pm

    Students pay in advance in good faith that they will receive what they pay for each semester for every class taken. However when the product falls short of contractual and advertised expectations students have no recourse. Speaking as a recent college grad with 128 credits I can truthfully state that 32 credits were not worth the money roughly 10 classes, or two semesters worth. Ranging from professors who missed half of their classes, to classes that did not cover the advertised subject matter, and classes with under 10% pass rates. These are legitimate complaints that were brought to the attention of the powers that be and never addressed, it was a miracle that I graduated lord knows they sure tried to black ball me because of my persistent demands for getting my moneys worth. Now if 25% of my classes weren’t worth the money would it not be expected that 25% of the college debt was not worth the money either, so the $870 billion dollar student loan debt would actually be $653 billion. Would it not be prudent for students to be required to submit surveys at the end of each semester for each professor, and only the professors that actually did a fairly good job would be retained. This approach would put a stop to the dreaded tenured positions highly coveted by the worst professors, and reduce college debt by refunding the money for classes that did not meet the advertised and contractual expectations of the students. This is a money grab in more ways than one.

    Report Post » Black Midge  
  • Lets-do-it
    Posted on March 8, 2012 at 4:37pm

    I am 57 years old, I got a student loan, and it took me twelve years to pay it off. Although it took sometime, at least I payed it back. I didn’t get a job I went to school for, but did OK, I’m now retired, no debt, and house paid for. So, it can be done.

    Report Post »  
  • bhelmet
    Posted on March 8, 2012 at 4:28pm

    The Fed put the latest outstanding student loan balance at $870 billion. Meanwhile, credit card debt in the U.S. totaled $693 billion, according to the same report, and car loan debt totaled $730 billion.

    $2.2T in debt amongst 3 “very stable” categories.

    Report Post » bhelmet  
    • lukerw
      Posted on March 8, 2012 at 4:45pm

      The Democrats have a simple Solution… just increase Government worker wages… hire them all into the Government… and the problem is Solved :)

      Report Post » lukerw  
  • ChiefGeorge
    Posted on March 8, 2012 at 4:15pm

    If they get their way here on this then now contract can ever be iron clad or even honored by the borrower. No wonder the banks are restricting credit access…or is that a right now?

    Report Post » ChiefGeorge  
    • objectivetruth
      Posted on March 9, 2012 at 10:19am

      First off there is a difference in honoring a debt and it being iron clad.Contrary to popular opinion contracts aren’t iron clad nor written in stone.It sometimes takes a judge to modify them but no contract is totally iron clad.There are legitimate reasons to break and or modify a contract.If there weren’t ,we wouldn’t need part of our civil courts.Also if they were ,we might as well be living under feudalism.

      Report Post »  
  • I_Occupy_A_Job
    Posted on March 8, 2012 at 4:13pm

    The government controlling student loans is just another power grab. Students fall under mountains of debt to get a useless degree and re-elect the politicians that float out the idea of forgiving student loan debts.

    “The rich rule over the poor, AND THE BORROWER IS SERVANT TO THE LENDER” (Proverbs 22:7)

    Report Post »  
    • ChiefGeorge
      Posted on March 8, 2012 at 4:17pm

      Paid all my debts today except for my home! I expect that I can pay that my home off, the Lord willing.

      Report Post » ChiefGeorge  
  • sawbuck
    Posted on March 8, 2012 at 4:10pm

    Some of them students look a little long in the tooth.
    How long have they been going to school ?

    Report Post » sawbuck  
    • AJAYW
      Posted on March 8, 2012 at 5:43pm

      They look that way because they are-
      We have had and still have young men quiting good paying construction type jobs to go to college. They have been convienced that brick & block layers, carpenters, welders, equipment operators, truck driving and anyother job you have isn’t a good job- They are told they need to get in college to better themselver. Its wrong -the trades are what we need as a nation- I know a young man that is 35 and quit a great job as a operator account he has been brain washed into thinking that he must go to college. The goverment pays him xxxxxxx a month for living expense and gave him a student loan.

      Report Post »  
  • TOPOFTHEGAME
    Posted on March 8, 2012 at 4:07pm

    Now we know where the ““Brown Shirts”” will come from………… Forgive the loan and you now will be in ””The One’s”” Army

    Report Post »  
  • lukerw
    Posted on March 8, 2012 at 4:04pm

    “No student left behind”… the Eight Ball!

    Report Post » lukerw  
  • ELF1024
    Posted on March 8, 2012 at 3:59pm

    Maybe if they were getting a degree in something other than feminist studies in 19th century cookbooks they could find a job worth having.

    Report Post »  
    • lukerw
      Posted on March 8, 2012 at 4:11pm

      If you practice at a Sport, it does not mean that you will become a Pro Athlete,,, nor music, a Star… so, who Sold them that Education means a Good Job… when there must be Good Jobs that demand the Educated, first! The Horse goes before the Cart, nof after! IDIOTS!

      Report Post » lukerw  
    • jamforpresident
      Posted on March 9, 2012 at 11:34am

      What an inane comment.

      Report Post » jamforpresident  
  • jakartaman
    Posted on March 8, 2012 at 3:59pm

    I hope after their communist indoctrination in college when they hit the streets reality
    sets in and they see the follies of their kooky professors.
    When I was young and stupid I voted democratic – as I got older and wiser I became a conservative.

    Report Post »  
  • martyinhagerstown
    Posted on March 8, 2012 at 3:55pm

    Current administration will encourage defaults and riots on this issue to further hasten the chaos that is coming to encourage everyone to tolerate any act of constitutional mischief they desire.

    Report Post »  
  • Nemo13
    Posted on March 8, 2012 at 3:54pm

    College is a farce. Bring back the apprentice to the work place. Few jobs need advanced schooling beforehand. Its all a money grab. 2 years before you can start a major? Have to take fluff classes?! Why?! all BS!! Most who graduate are as clueless as when they went in, they are just liberal training camps now.

    Report Post »  
    • Ookspay
      Posted on March 8, 2012 at 3:59pm

      The perfect post! On topic, pithy and provocative. Well said Nemo.

      Report Post » Ookspay  
    • jamforpresident
      Posted on March 9, 2012 at 11:40am

      An apprenticeship is a valid idea for jobs that don’t require much education: carpenter, plumber, car salesman, what have you. And the salaries for those kind of jobs reflects the fact that you don’t need as much education for it. Less competition.

      But I feel much calmer knowing that my doctor or dentist has her/his college diploma(s) hanging in her/his office.

      Report Post » jamforpresident  
  • mcellu
    Posted on March 8, 2012 at 3:53pm

    which begs the question “WHY is the federal govt in the loan business in the first place?!”

    Report Post »  
    • I_Occupy_A_Job
      Posted on March 8, 2012 at 4:07pm

      Very simple, it’s a power grab.

      “The rich rule over the poor, and the borrower is servant to the lender” (Proverbs 22:7).

      Report Post »  
  • Chuck Stein
    Posted on March 8, 2012 at 3:51pm

    Student loans need to be limited to likelihood of repayment. If you are getting a degree in sociology, english, women’s studies, etc., then the government should not be finacially encouraging it. If you are really good at those areas and can get a scholarship, then more power to you. Education for the sake of education has it’s place. I‘m not saying that that people shouldn’t be studying anything in particular — only that the taxes paid (for example) by a coal miner or a car mechanic shouldn’t be spent on someone getting a degree in law, etc. It is wrong — fiscally as well as ethically. The feds come down hard on beauty schools, etc. that have their students pay tuition with student loans but then those graduates can’t get a paying job. Where is the equivalent treatment for colleges and universities?

    Report Post »  
  • Mark0331
    Posted on March 8, 2012 at 3:49pm

    Only 40 to 50 percent end up finishing their degress….what a waste of effort. Pay your debts people, have some honor. No one put a gun to your head to sign the paper. Integrity and honor are dying in this country. Do not expect me to help someone who is a deadbeat…cash, grass or ass..no one rides for free…

    Report Post » Mark0331  
    • Chuck Stein
      Posted on March 8, 2012 at 4:01pm

      If more kids were counselled in high school to consider an associate’s degree, this problem would be lessened. With concurrent enrollment, AP testing and CLEP testing, a good amount of college credit can be obtained (a daughter of mine started at a top-flight university witha full year’s credit with AP testing, for example). Next, if the “goal post” is only 2 years away, then there is less chance for discouragement. Finally, once you have an associate degree, it is YOURS — the credits will not “evaporate” after 10 years or so. After getting the associate’s degree, the 20 year old can get a job or two while they figure out what they want to do in life (and they can then get a BS or BA in that field). The “one size fits all” or “pipeline” approach works well for social insects, but it is just too simplistic for human populations.

      Report Post »  
    • Mark0331
      Posted on March 8, 2012 at 7:16pm

      I agree Chuck, wholeheartedly…common sense isn’t so common these days..they want everything or nothing and can’t comprehend your POV…’What, me sacrifice and work?’….Too bad jobs such as electrician, plumber or welder have been denigrated in society… The kids who start down that career path will always make more money than their ‘college’ counterparts in this new economy, and not be in debt by the time they are 23.

      Report Post » Mark0331  
    • objectivetruth
      Posted on March 9, 2012 at 10:34am

      @Check Stein
      You aren’t kidding.I wish they would expand the CLEP and AP.I think american would be surprised to discover how many very intelligent talented individuals there really are.Many don’t go to college due to cost and family commitments.If they would expand these programs [CLEP AND AP]many could get a degree very quickly and head back into the work world.With better pay and benefits I might add.

      Report Post »  
  • shimauma
    Posted on March 8, 2012 at 3:47pm

    “Fear of beginning one’s adult life with a mountain of debt may have some students dropping out, said W. Norton Grubb, a professor at UC Berkeley’s School of Education…”

    See the only ones really worried about this are the colleges, those leftard professors need their meal tickets to keep spouting their lies and machinations against people who work hard and make money.

    Report Post » shimauma  
  • progressiveslayer
    Posted on March 8, 2012 at 3:39pm

    The government’s in the housing business,agriculture,banking,auto industry,public schools and on and on and everything government touches it turns into turds.Everything I just listed is something the government has no business in,they’re regulating,taxing and spending us into depression part two.

    We make government smaller and reduce their power like it should be and we’ll have a chance at saving our republic,we go the way our Marxist POS president insist‘s on and we’ll be Greece but with more deaths.

    Report Post » progressiveslayer  
  • ModerationIsBest
    Posted on March 8, 2012 at 3:34pm

    Government created bubbles eventually burst.

    Report Post »  
  • smithclar3nc3
    Posted on March 8, 2012 at 3:31pm

    These ingrate ******** need to honor their debt or return their degrees having all their college transcripts erased. ASs if they never attended school.

    Report Post »  
    • copatriots
      Posted on March 8, 2012 at 3:54pm

      Never gonna happen, SMITH. These kids watched their parents walk away from their mortgages and learned by that example. They surely will have no qualms walking away from the responsibility of their own debt. Their viewpoint is……why should I? I didn’t create this rotten economy. They view it as bankers as well as the excesses of their parents who created the mess.

      Report Post »  
    • JBIII
      Posted on March 8, 2012 at 4:18pm

      You’re ignoring the bigger issue. The problem that most students face when they get out of college is that they can’t find a job. I just graduated a little over a year ago from a well known university and was fortunate enough to find a job quickly because where I live has been one of the few places not to be hit hard by the economic downturn (mostly defense contract work here). However, this was the only job that even gave me an interview.

      The job market is flooded with people with more experience who have been laid off. The issue all falls back on this administration, along with the democratically controlled Congress, and their ever expanding government control that has seriously quelled the growth of small business which, along with a great many other things, has killed economic growth. The issue with students is more of a statement on the economy as a whole rather than a contributing factor.

      When I would go to job fairs, the people there would just tell us there were no positions open. You can‘t repay a debt if you can’t make money.

      Report Post »  
    • steveh931
      Posted on March 9, 2012 at 11:51am

      @JBILL,

      A recent college graduate that knows, amazing, Good Luck. Don’t forget to spread the word, we could use some help from the younger generations in turning this sinking ship around.

      Report Post » steveh931  
1 2

Sign In To Post Comments! Sign In

Sign Up For Our Newsletter!

Glenn Beck Radio

Listen to Glenn Beck 24/7 Listen Now
Restoring Love