However, these statistics are attributable mostly to borrowers who drop out of college and not to borrowers who graduate. College dropouts have the debt, but not the degrees that can help them repay the debt. Thus, we don’t have a student loan problem, at least not yet, so much as a college completion problem.

True, the likelihood of default increases as the amount of debt and the debt-to-income ratio increases, but this is not yet the dominant driver of non-performing loans. That’s why the average debt of defaulted borrowers is relatively low. Students who graduate tend to borrow more than students who drop out of college.

But, if current trends continue, average debt at graduation will exceed the average income of college graduates. As debt-to-income ratios grow, there will be a cascading effect on the next generation. Families will become more sensitive to the net price of a college degree and the return on investment.

The consequential shifts in enrollment patterns will force more colleges to close or merge, especially among small, high-cost, tuition dependent private colleges that are not well known nationally. Except for about 300 colleges, most colleges do not have significant endowments.

Thus, we will eventually have a student loan problem, probably within the next two decades. The time to deal with the problem is now, before the problem grows much worse.

For the last five decades, federal and state government support of postsecondary education has failed to keep pace with increases in college costs on a per-student, inflation-adjusted basis. This has shifted the burden of paying for college from the government to families. Since family income has been flat since the late 1990s, families have been forced to either shift enrollment to lower-cost colleges or to borrow more. Lower-income students have also been priced out of a college education.

At the same time, college enrollment has doubled, forcing colleges to do more with less. Increased student-faculty ratios and increased reliance on part-time faculty has affected the quality of education. The problem will become more acute as the K-12 pipeline of traditional college students continues to shrink. This will prevent colleges from compensating for cuts in government revenue by increasing enrollment, especially from full-pay students.

The only solution is for the federal and state governments to start paying their fair share of college costs, to ensure that a college education remains affordable. The government gains substantial financial benefits from higher education, through increased tax revenue. A college graduate pays more than double the federal income tax of a high school graduate because of higher income.

Increasing government grants or other financial support of postsecondary education will pay for itself within a bit more than a decade because of the increased tax revenue. Since most people work for 45 years, that yields more than 30 years of pure profit for the government, potentially enabling a future cut in tax rates. An investment in our greatest asset, our people, will yield the equivalent of a 14% annualized return on investment. It is not just a great investment. There is no better investment.

Students Who Borrow Excessively

A student is said to borrow excessively for their college education when their total student loan debt at graduation exceeds their annual income after graduation. This is the equivalent of monthly student loan payments on a 10-year term exceeding 10% of gross monthly income.

Excessive student loan debt makes it more difficult for the borrower to repay their student loans within a reasonable amount of time, such as 10 years. It also causes delays in achieving other payday cash loans New Mexico financial goals. Often, they must choose alternate repayment plans, like extended repayment or income-driven repayment. These repayment plans reduce the monthly student loan payment by increasing the repayment term.

This chart shows the percentage of Bachelor’s degree recipients each year who graduate with excessive student loan debt. Students who borrow more or earn less are more likely to graduate with excessive debt. This chart is based on data from the 1993-94, 2000-01 and 2007-08 Baccalaureate and Beyond (B&B) longitudinal studies and on data from a similar study conducted before 1993, the 1976-77, 1985-86 and 1989-90 Survey of Recent College Graduates (RCG).

Notice the steady increase in the percentage of students graduating with excessive debt. If current trends continue, about 1 in 6 Bachelor’s degree recipients graduates with excessive debt today.

This chart recasts the same data as the percentage of Bachelor’s degree recipients who borrowed to pay for their education, as opposed to the percentage of all Bachelor’s degree recipients.

The result is a flattening out of the chart. Of those who borrow, slightly more than a quarter graduate with excessive student loan debt. This trend has been steady for two decades, suggesting that the growth in students graduating with excessive debt is due largely to the growth in borrowing and not due to increased recklessness.

Student Loan Repayment Status

Student loan status refers to the repayment status of the loan, whether it is not yet in repayment (e.g., in-school and grace periods), in repayment, in an authorized non-payment status (e.g., deferment, forbearance) or in default.

This chart shows how the distribution of loans by the percentage of borrowers in each loan status has changed from 2013 to the present. The percentage of borrowers in active repayment has been increasing over time. Likewise, the percentage of borrowers in default has also been increasing, albeit at a slower rate. The chart also shows that the percentage of borrowers in an in-school or grace period has been decreasing, since the number of borrowers in these statuses is more or less fixed while the overall portfolio grows.

This chart shows the same results, but based on the percentage of loan dollars as opposed to the percentage of the number of borrowers.

This table shows the distribution of loan dollars and the number of borrowers by loan status in the Direct Loan portfolio, based on data from the FSA Data Center for Q1 of FY2019. The Other category includes borrowers in bankruptcy or disability.