How Scary is the National Student Loan Debt?
I’ve seen a lot of scary info about student loan debt and it’s increase. How bad is this and should I be worried?
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Below are charts showing the trends for major debt categories from the Federal Reserve Bank of New York data, with the line chart focusing on student, auto, and credit card debt. From one perspective, this feeds into the narrative that student loan debt is the biggest problem we are facing and that consumers are going crazy over education debt. I choose to look at it differently (and more positively).
STUDENT DEBT ISN'T THE WORST DEBT
First, I think it's great that student loan debt is finally larger than credit card debt. What world do we want to live in where we think having credit card debt would be better than taking on debt to pursue greater job opportunities?
And I'd argue that student loan debt is better than car debt as well. So I'd hope it would be higher than both auto and credit card debt in a healthy society. (There is an argument to be made about free education as well as lowering overall debt, but as it stands, I'd rather have more student loan debt than more credit card debt).
CREDIT CARD DEBT IS DOWN 40%
Second, credit card debt has pretty much held constant in nominal dollar terms since 2020. So on an inflation adjusted basis, credit card debt has decreased by 40%!!!
INCREASED DEGREE ATTAINMENT
The number of degrees awarded has increased by over 60% in almost every category over the same 22 year period, with Doctorate and Masters degrees coming close to doubling. meaning part of this growth isn't due to increasing average student loan debt but due to more people getting more degrees.
If we adjust for inflation and the increased degree attainment, the annual rate of increase in student loan debt is 2.16%. Student loan debt still outstrips inflation and degree attainment, but not by nearly the 'ballooning' factor many attribute to it.
BROADER PLANNING REDUCES/INCREASES THE PROBLEM
Another factor I'd love to see research on is how much financial planning around student loan forgiveness is impacting the numbers.
I have a lot of clients where we are paying the minimum on student loan debts while pursuing one of the many student loan forgiveness programs (and have had a few where they already got the forgiveness). Since we are paying minimums, their student loan balance is shrinking very, very slowly.
As a result, some of this balance (possibly a massive amount) is due to planning around pursuit of forgiveness.
And if planners are like me and have a back-up plan if the forgiveness isn't given, we could see big future pay-downs of student loan debt as either the forgiveness happens or as back-up plans are put into place.