The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.
These are alarming statistics, but the Fed's report also included information that is even scarier. More than half of student-loan borrowers in the 2009 cohort of borrowers had not paid down their student loans by even one penny five years after beginning repayment.
According to the Fed report, 59 percent of the 2009 cohort who owed $5,000 or less had not reduced their debt by even a dollar by 2014. Well over half of people with very modest levels of student debt were delinquent on their loans, in default, or had failed to reduce their original loan balance by even a fractional amount.
Among people who owed between $50,000 and $100,000, 57 percent had not cut their student-loan debt by even a penny over five years. Among people owing $100,000 or more, 54 percent had made no progress on their loans during that time period.
The Fed report was commenting on a single cohort: people who took out student loans in 2009. But the repayment rates for more recent cohorts must be at least as bad. The Department of Education has been encouraging distressed borrowers to enter 20- and 25-year repayment plans, which lowers monthly payments. But in almost every case, the lower payments are not large enough to cover accruing interest, so most of the 6 million people in long-term, income-drive repayment plans are seeing their loan balances grow larger with each passing month.
And here's another scary tidbit of information. The Government Accountability Office reported in 2016 that half the people in income-driven repayment plans have been kicked out because they aren't abiding by the plans' eligibility rules.
In short, a perfect storm is brewing on the nation's economic horizon. Student loans are forcing more and more young people to postpone buying a house and to live with their parents. Millions of people are making no progress at all toward paying off their student loans.
We can quantify some of the harm caused by the student-loan crisis, but other harms are difficult to measure. How many people have given up trying to get ahead because their student-debt grows larger with each passing month? How many have become cynical, despondent, or angry? How many of those masked antifa anarchists have student loans?
Steve Rhode put his finger on the only solution to the student-loan catastrophe. "Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to a fresh start in bankruptcy,"Mr. Rhode wrote, "the economic future of the days ahead is going to be less than it could have been."
Exactly. The only path out of this economic quagmire is through the federal bankruptcy courts.
|The student-loan crisis is brewing into a perfect storm.|
Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.
Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement Savings. Personal Finance Syndication Network, September 207.
US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.