There's no denying it — a student loan crisis is coming

As we come to the end of another academic year, college seniors across the country don their caps and gowns to walk down the aisle to receive their degree celebrating years of effort while representing their transition from a student into the national workforce. But that “sheepskin” comes at a cost; a financial burden that some may take an entire lifetime to recover from.

In their report “Trends in Student Aid 2016,” the College Board informs us that “In 2014-15, the 61% of bachelor’s degree recipients from public and private nonprofit institutions who borrowed graduated with an average of $28,100 in debt.”  

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As the graduation parties fade into distant memories the prospects for these graduates securing good paying jobs may not meet their expectations or cover their ability to repay these student loans. 

Judith Scott-Clayton writing for Brookings in “The looming student loan default crisis is worse than we thought” informs us that:

“Trends for the 1996 entry cohort show that cumulative default rates continue to rise between 12 and 20 years after initial entry. Applying these trends to the 2004 entry cohort suggests that nearly 40 percent may default on their student loans by 2023.”

A CBS News article paints a bleak picture quoting Elise Gould, senior economist at the Economic Policy Institute. It reports that more than 1-in-10 college graduates are “underemployed,” working in jobs that don’t use their skills.

“There's an increase in the number of young college grads who are taking jobs that don't require a college degree, so it's taking them longer to get them really started on their career track," Gould said. Underemployment "has improved, but it's still higher than before the recession."

CNBC further informs us that “Graduates of the Class of 2018 are heading into a job market with the lowest unemployment in 17 years and higher starting salaries. However, employers plan to hire fewer new grads than in recent years.” The reporter further states “As a result, nearly four in 10 recent graduates don't think it's likely they'll be able to pay off their student loan debt within 10 years according to a separate report by NerdWallet.”  

“Over the last decade, college loan balances in the U.S. have jumped to an all-time high of $1.4 trillion,” CNBC reports. Given the 40 percent default rate predicted by Brookings, that indicates a $560 billion default in student loans facing current college students.

Andy Puzder writing in the Hill states that:

“Congress should act before we experience a collapse in the student debt market similar to the collapse in the subprime mortgage market that led to the recession after the 2008 financial crisis.”

These issues have also attracted the attention of the General Accountability Office (GAO). They have identified one of their key issues under post-secondary education access affordability as:

“Strengthening accountability for student outcomes while maintaining access. The federal government provides financial assistance to students attending thousands of accredited institutions each year. However, relatively little is known about the quality of education being provided by these schools.”

GAO found in their December 2014 report, “Education Should Strengthen Oversight of Schools and Accreditors”, “To access federal student aid — which totaled more than $136 billion in fiscal year 2013 — schools must be accredited to ensure they offer a quality education.” GAO found that from October 2009 through March 2014 “…accreditors — independent agencies recognized by the Department of Education (Education) — sanctioned about 8 percent of schools for not meeting accreditor standards. They terminated accreditation for about 1 percent of accredited schools, thereby ending the schools’ access to federal student aid funds.” Further, GAO found that “…accreditors were more likely to have sanctioned schools with weaker financial characteristics than those with stronger ones.”

Given this as an incentive we can further question the ease with which the statistics can be manipulated to disguise the actual default rate from a schools graduated population. In an April 2018 report on federal student loans, the GAO concludes “…While postponing payments through forbearance may help struggling borrowers avoid default in the near term, it increases borrowers’ ultimate repayment costs and does not necessarily put borrowers on a path to repaying their loans. Moreover, including borrowers who spend 18 months or more in forbearance in the CDR (Cohort Default Rate) calculation reduces the CDR’s ability to hold schools accountable for high default rates since long periods of forbearance appear to delay —  not prevent — default for some borrowers.”

Consistent with Andy Puzder’s warning, the GAO also calls for congressional action to improve the measures utilized to gain a proper understanding of the student debt crisis before us and take action before all that can be done is “…delay — not prevent — default…”  

John M. DeMaggio is a retired Special Agent in Charge and retired Captain in the U.S. Navy. The above is the opinion of the author and is not meant to reflect the opinion of the U.S. Navy or the U.S. Government.