Finance

Prelude to a crisis: Student debt passes $1.5 trillion and 65% of borrowers have less than $1,000 in the bank

Student debt outstanding has tripled since 2005 — soaring past 1.5 trillion earlier this year, according to the Federal Reserve. Furthermore, one in six borrowers has a debt burden that exceeds their annual income, leading to a long-term savings crisis that has the potential to explode in the future as 65% of those who owe money to Sally Mae have less than $1000 in savings.

According to a similar national survey of indebtedness from student loans from the nonprofit organization Student Debt Crisis and the startup Summer, the average debt burden among respondents was $80,000, while the income of the average respondent was $60,000. The nationwide average is lower — with average student indebtedness for the class of 2016 standing at $37,172 — but the survey is an important source for street-level data on the student debt crisis, as it chronicles the everyday financial strain created by high monthly payments and carrying anything form a large car payment to a small mortgage without an asset to go with it.

The implications of both studies’ data are troubling. The largest borrowers have taken on the equivalent of a small mortgage but have no asset to show for that investment, and even the median borrower has a debt burden greater than half the average household income in the United States. These obligations no doubt contribute to the decline in mobility over the past few decades — if you have $35,000 in debt and nothing saved, it is hard to move your family across the country for a new job.

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Student debt outstanding has tripled since 2005 — soaring past 1.5 trillion earlier this year, according to the Federal Reserve. Furthermore, one in six borrowers has a debt burden that exceeds their annual income, leading to a long-term savings crisis that has the potential to explode in the future as 65% of those who owe money to Sally Mae have less than $1000 in savings.

According to a similar national survey of indebtedness from student loans from the nonprofit organization Student Debt Crisis and the startup Summer, the average debt burden among respondents was $80,000, while the income of the average respondent was $60,000. The nationwide average is lower — with average student indebtedness for the class of 2016 standing at $37,172 — but the survey is an important source for street-level data on the student debt crisis, as it chronicles the everyday financial strain created by high monthly payments and carrying anything form a large car payment to a small mortgage without an asset to go with it.

The implications of both studies’ data are troubling. The largest borrowers have taken on the equivalent of a small mortgage but have no asset to show for that investment, and even the median borrower has a debt burden greater than half the average household income in the United States. These obligations no doubt contribute to the decline in mobility over the past few decades — if you have $35,000 in debt and nothing saved, it is hard to move your family across the country for a new job.

Even further up the chain of causation, large student debt burdens are almost certainly one of the main reasons young people are delaying getting married and starting a family. If both partners have taken on the median amount of student debt, then the debt burden for the new family is already $70,000. It is no wonder young Americans are putting off marriage when the first day will sound like this: “congratulations to the happy couple, who now together owe $880 per month for ten years. Payable to the federal government, in order to cover principal and a 7.5% rate of interest on their liberal arts degrees.” That is $880 per month before kids, before car payments, before a mortgage payment, and before any savings — it is not poverty, but it certainly is not easy to swing that and raise a family on $1180 a week.

About Alex Benson View All Posts

Alex Benson writes about financial markets and the US economy, interpreted through the lens of his experience as an economist, lawyer, and avid reader and student of history. Alex graduated from law school in 2016 and is a practicing lawyer at his day job. The rest of his time is spent reading, writing, or in the weight room; when not practicing law or reading and

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