MEMO: A $1.2 Trillion Crisis

Students, borrowers and their families are increasingly being squeezed by a system in which dramatic cuts to the university and technical colleges, skyrocketing tuition and profiteering by big banks and the federal government has resulted in nearly 40 million borrowers holding over $1.2 trillion nationally.

Since 2000, student loan debt has grown exponentially, from $200 billion to an estimated $1.2 trillion today. [Source]

Student loan debt is now the 2nd largest consumer debt – more than credit cards or auto loans, exceeded only by home mortgage debt – and was the only form of consumer debt to increase during the Great Recession. [Source]

Banks are profiting tens of billions a year from interest charged on student loan borrowers and the federal government earned over $41 billion in profit on student loans in fiscal year 2013. For comparison, only Exxon Mobil and Apple reported corporate profits that exceeded what the federal government earned from student loan interest. [Source]

New data released by the White House, based on 2014 Department of Education statistics, reveal Wisconsin’s share of the $1.2 trillion student loan debt crisis. According to the data there are 812,000 state residents with over $18.2 billion in outstanding federal student loan debt. [Source]

The most recent data reports the average borrower in Wisconsin today has an average debt of just over $28,000. [Source]

And the problem continues to get worse, according to a Pew Research study borrowers are taking on twice as much debt today as they were 20 years ago. [Source]

Economic Impact

One Wisconsin Institute conducted comprehensive research of the impact of student loan debt in Wisconsin. [Source]

Among the findings were:

  • Individuals with bachelors degrees reported making an average monthly student loan payments of $350 and those with graduate or professional degrees made an average payment of $448;
  • The length of student loan debt was nearly 19 years for persons with bachelors degrees and over 22 years for those with graduate or professional degrees;
  • An increasing reliance on private student loans versus government loans and an increasing number of individuals consolidating their loans, therefore extending the repayment period and total amount paid, post-1996 Student Loan Marketing Association Reorganization Act;
  • Individuals paying on a student loan are more than twice as likely to purchase a used versus new automobile;
  • Annual aggregate new vehicle spending may be reduced in Wisconsin by up to $201.8 million;
  • A strong correlation between student loan debt and renting with 85.6{3dc3145a56b1a82abd649af7a7ec83655f1117606e793d7c8d247dfe86b544ed} of renters with household incomes between $50,000 and $75,000 currently paying on a student loan.

The national think tank DEMOS conducted research that found that, “$1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households, not even accounting for the heavy impact of defaults.” [Source]

Confirming the earlier research conducted in Wisconsin by One Wisconsin Institute, a recent study from a home building industry consulting firm estimates student loan debt is costing the U.S. housing market $83 billion annually in lost home sales. According to the report, every $250 in monthly household student loan debt payments reduces that household’s home buying purchasing power by $44,000. [Source]

Recent graduates are obviously feeling the impact of the unprecedented levels of debt they are forced to incur to finance their education or job training. Student loan debt now accounts for nearly 37{3dc3145a56b1a82abd649af7a7ec83655f1117606e793d7c8d247dfe86b544ed} of the total debt for those aged 20-29, and other debt like mortgage debt is correspondingly decreasing. [Source]

But student loan debt is not just for young people. Since 2005, the student loan debt held by people over the age of 50 has tripled from $8 billion to $43 billion. Of this debt, 27 percent was for the financing of a child’s education, but 73 percent was for their own education or job training. [Source]

In fact, the Social Security benefits of 155,000 Americans were garnished in 2013 to pay back student loan debt. Over 700,000 households over the age of 65 owe over $18 billion in student loan debt, according to the federal Government Accountability Office. [Source]

A new report from the Consumer Protection Financial Bureau also pointed to significant challenges for borrowers not just with federal student loans, but with the private student loan market. Most notably, private lenders showed significant resistance to attempts by borrowers to modify the terms of their repayments. [Source]

Proposed State Solutions

In Wisconsin, the first of its kind Higher Ed, Lower Debt Act was proposed to offer state help to address the growing crisis of student loan debt. [Source]

Democratic gubernatorial candidate Mary Burke has called for allowing state-based refinancing to help make college more affordable as part of her economic plan. [Source]

Gov. Walker signed a tuition freeze for UW students, paid for by drawing down existing reserves, as part of the 2013 budget, and has said he would like to continue the freeze. [Source]

Gov. Walker signed a UW tuition increase of 11{3dc3145a56b1a82abd649af7a7ec83655f1117606e793d7c8d247dfe86b544ed}, or $107 million, over the two years of the 2011 budget. Financial aid for eligible students was also reduced by nearly $40 million. [Source]

More recently it has come to light that under the Walker administration over 41,000 eligible students received no financial aid because of a lack of funding, forcing them to make choices like taking on more student loan debt or delaying their studies. [Source]

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