"Student Loans, Rising - Credit Card Debt, Falling"
Sydney M. Williams
A possible silver lining extruding from the dark cloud of debt that hangs above the American consumer is the fact that student loans now exceed credit card debt. While that is obviously bad news for students and recent graduates, one could argue that the former represents an investment, while the latter is a manifestation of sating one’s current personal wishes. Perhaps?
Credit card debt and mortgage debt have declined in the past couple of years. The decline in mortgage debt is a function of forces pulling in opposite directions. On the one side, we have thousands of homeowners walking away from their houses. A year ago Realty Trac estimated that 900,000 homes were listed as having been foreclosed. The numbers have likely risen since. On the other hand, each year about 1.2 million Americans become potential homeowners. The consequence is that total mortgage debt has declined modestly from $14.6 trillion in 2008 to $13.9 trillion as of June 2010, a decline of 4.8%. The decline in credit card debt has been more precipitous. According to an article in USA Today last August 27, credit card debt, at the end of June 2007, was at the lowest level in eight years – $495 billion versus $572 billion a year earlier, a decline of 13.5%. Total revolving consumer debt amounted to $828 billion.
In contrast, student loan debt, according to the publishers of FinAid.org, rose to $850 billion. The Project on Student Debt estimates that total student debt is just under a trillion dollars. Both organizations agree that student loans now exceed credit card debt for the first time ever.
There are a number of explanations for this trend:
●Since 1978, according to nplusonemag.com, tuition at U.S. colleges has risen over 900%, 650 basis points above inflation. In contrast, home prices are up only 50 basis points above the CPI during those years.
●Home equity loans, which had been used by parents of students, are no longer available.
●The job market has been such that many parents of students have lost their jobs, and has made the job search for graduates more difficult.
●The weak economy spurred growth at community colleges – 96% of whose students take out loans.
Too much debt is never a good thing, no matter its purpose. But debt incurred in order to increase one’s income makes more sense than debt taken on to satisfy one’s whims. However, questions have been raised as to whether the rapid growth in tuition has created a value commensurate with its costs. In his book, How the University Works, Marc Bousquet points out that if a university student is enrolled in four courses that, on average, only one will be taught by a fully qualified professor, the reverse of forty years ago before the explosive growth in tuition began. During the same time, the proportion of administrators has skyrocketed and the number of tenure-track faculty has declined. The Department of Education has estimated that by 2014 there will be more administrators than instructors at American four-year nonprofit universities – creating a bloated bureaucracy not unlike our government.
In 2009, forty-four percent of all U.S. undergraduates were in community colleges. Between the fall of 2007 and 2009 enrollment increased 17% to about 13 million, which includes about 5 million non-credit students. For-profit colleges have become the fastest growing segment of higher education in America. Ninety-six percent of their students take on debt and, after fifteen years, 40% are in default – a statistic that again raises the question as to the value received for the money expended. Those questions lead inexorably to the conclusion that value received does not match costs. Reinforcing that opinion is a calculation from the Department of Education that only 40% of student loans are in active repayment.
As taxpayers we have an interest in this scenario. Estimates assume about 30% of outstanding student debt is securitized, with the federal government on the hook for most of it, either directly or indirectly. Defaults look very possible.
Access to education is one of the principal benefits of being an American. Unfortunately the public has been sold on a misconception that four years of college leads directly to financial security. It often does, and certainly statistics show that the college educated have higher incomes and less unemployment. But it is not a guarantee. And, as the numbers show, many people have been sold a bill of goods – borrowing money which too often has gone to college administrators, not educators, and has not provided the expected job. Over the last four or five decades while the numbers of college educated have increased, there has been a decline in skilled labor. Despite record unemployment, high-paying jobs requiring specific skills have gone begging. We are turning into a bar-belled society – the college educated on one end and the ill-educated (often illegal immigrants) on the other. What has been lost has been skilled artisans.
Nevertheless, in my opinion, an increase in student loan debt and a decline in credit card debt suggests the country is headed in the right direction. Self-improvement makes more sense than self-aggrandizement, even when the benefits are not immediately visible.
Thought of the Day
“Student Loans, Rising – Credit Card Debt, Falling”
April 29, 2011A possible silver lining extruding from the dark cloud of debt that hangs above the American consumer is the fact that student loans now exceed credit card debt. While that is obviously bad news for students and recent graduates, one could argue that the former represents an investment, while the latter is a manifestation of sating one’s current personal wishes. Perhaps?
Credit card debt and mortgage debt have declined in the past couple of years. The decline in mortgage debt is a function of forces pulling in opposite directions. On the one side, we have thousands of homeowners walking away from their houses. A year ago Realty Trac estimated that 900,000 homes were listed as having been foreclosed. The numbers have likely risen since. On the other hand, each year about 1.2 million Americans become potential homeowners. The consequence is that total mortgage debt has declined modestly from $14.6 trillion in 2008 to $13.9 trillion as of June 2010, a decline of 4.8%. The decline in credit card debt has been more precipitous. According to an article in USA Today last August 27, credit card debt, at the end of June 2007, was at the lowest level in eight years – $495 billion versus $572 billion a year earlier, a decline of 13.5%. Total revolving consumer debt amounted to $828 billion.
In contrast, student loan debt, according to the publishers of FinAid.org, rose to $850 billion. The Project on Student Debt estimates that total student debt is just under a trillion dollars. Both organizations agree that student loans now exceed credit card debt for the first time ever.
There are a number of explanations for this trend:
●Since 1978, according to nplusonemag.com, tuition at U.S. colleges has risen over 900%, 650 basis points above inflation. In contrast, home prices are up only 50 basis points above the CPI during those years.
●Home equity loans, which had been used by parents of students, are no longer available.
●The job market has been such that many parents of students have lost their jobs, and has made the job search for graduates more difficult.
●The weak economy spurred growth at community colleges – 96% of whose students take out loans.
Too much debt is never a good thing, no matter its purpose. But debt incurred in order to increase one’s income makes more sense than debt taken on to satisfy one’s whims. However, questions have been raised as to whether the rapid growth in tuition has created a value commensurate with its costs. In his book, How the University Works, Marc Bousquet points out that if a university student is enrolled in four courses that, on average, only one will be taught by a fully qualified professor, the reverse of forty years ago before the explosive growth in tuition began. During the same time, the proportion of administrators has skyrocketed and the number of tenure-track faculty has declined. The Department of Education has estimated that by 2014 there will be more administrators than instructors at American four-year nonprofit universities – creating a bloated bureaucracy not unlike our government.
In 2009, forty-four percent of all U.S. undergraduates were in community colleges. Between the fall of 2007 and 2009 enrollment increased 17% to about 13 million, which includes about 5 million non-credit students. For-profit colleges have become the fastest growing segment of higher education in America. Ninety-six percent of their students take on debt and, after fifteen years, 40% are in default – a statistic that again raises the question as to the value received for the money expended. Those questions lead inexorably to the conclusion that value received does not match costs. Reinforcing that opinion is a calculation from the Department of Education that only 40% of student loans are in active repayment.
As taxpayers we have an interest in this scenario. Estimates assume about 30% of outstanding student debt is securitized, with the federal government on the hook for most of it, either directly or indirectly. Defaults look very possible.
Access to education is one of the principal benefits of being an American. Unfortunately the public has been sold on a misconception that four years of college leads directly to financial security. It often does, and certainly statistics show that the college educated have higher incomes and less unemployment. But it is not a guarantee. And, as the numbers show, many people have been sold a bill of goods – borrowing money which too often has gone to college administrators, not educators, and has not provided the expected job. Over the last four or five decades while the numbers of college educated have increased, there has been a decline in skilled labor. Despite record unemployment, high-paying jobs requiring specific skills have gone begging. We are turning into a bar-belled society – the college educated on one end and the ill-educated (often illegal immigrants) on the other. What has been lost has been skilled artisans.
Nevertheless, in my opinion, an increase in student loan debt and a decline in credit card debt suggests the country is headed in the right direction. Self-improvement makes more sense than self-aggrandizement, even when the benefits are not immediately visible.
Labels: TOTD
posted by Thought of the Day @ 7:30 AM
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