College is said to be the path to wealth, but for many it has become a path to poverty as student loans and the fact that said loans in the US cannot be discharged by bankruptcy have reached and surpassed $166 billion dollars in “serious delinquency” according to a report:
Student-loan delinquencies surged last year, hitting consecutive records of $166.3 billion in the third quarter and $166.4 billion in the fourth. Bloomberg calculated the dollar amounts from the Federal Reserve Bank of New York’s quarterly household-debt report, which includes only the total owed and the percentage delinquent at least 90 days or in default. That percentage has remained around 11
That percentage has remained around 11 percent since mid-2012, but the total increased to a record $1.46 trillion by December 2018, and unpaid student debt also rose to the highest ever.
Delinquencies continued to climb even as the unemployment rate fell below 4 percent, suggesting the strong U.S. job market hasn’t generated enough wage growth to help some people manage their outstanding obligations.
Income levels for graduates “are not necessarily high enough for debt payments overall,” said Ira Jersey, Bloomberg Intelligence interest-rate strategist. “If you have a choice to pay your student loan or for food or housing, which do you choose?”
The delinquencies also have broader implications. Because most of the loans are government-sponsored, they probably won’t hurt the economy the way mortgage debt did in 2007, Jersey said. “But incrementally, it does mean higher federal deficits if the loans are not repaid.”
The total in arrears is about twice the amount the U.S. Treasury provided to bail out the auto industry during the last recession.
Loans at least 90 days past due are considered to be in “serious delinquency.’’ The age group transitioning into this category at the fastest pace is 40-to-49 year olds; that’s partly because of parents borrowing to pay their children’s expenses.
The cost of higher education has roughly doubled in the past 20 years, and the Federal Reserve Bank of St. Louis recently posted a blog entry asking “Is College Still Worth It?’’ The answer was not a definitive yes. One of the conclusions: “In terms of wealth accumulation, college is not paying off for recent college graduates on average — at least, not yet.’
Some schools have taken note, providing more support. The percentage increase in tuition at Cornell for the 2019-2020 academic year “is the lowest it has been in decades, and we are budgeting for a significant increase in financial aid,’’ the university said on Feb. 11. And 2019-2020 will be the seventh consecutive year Purdue University hasn’t boosted room and board rates.
This comes at a time when debt continues to increase for homes and automobiles, and yet the economy is presented as being better than it has been at any point in the last ten years.
Instead of taking a le bon temps roulez approach, this is the time for one to think about the future. All “good times” end, and indeed the “good times” today are not as good as those of the past for the simple reason that there has been a continual decline in prosperity without any serious trends of reversal. When the next economic crisis hits, it will surely devastate what little finances the people have left, and one can only imagine what the repercussions may be.
It has the eerie feeling of 2003 all over again, that at the time in but five years passing yielded not a future of prosperity, but resulted in a massive debt-fueled crash that destroyed the lives of many.
Now is not the time to “party hard,” but to take a lesson from Aesop’s The Ant and the Grasshopper, and to work hard, save up, and if one wants to invest, to invest wisely in tangible things so that when the inevitable turn for the worst in the economy takes place, one will be ready not only for one’s personal life, but to buy up valuable assets at a fraction of the cost and in so doing to help oneself and others.
History does not repeat, but it is a song that rhymes, and the tune of today is hardly that different from that of the past and as such, will likely yield similar results.
Will you be ready?