While investing in a college degree has indisputable long-term economic rewards, high student debt can put borrowers in a financial bind, limiting their capacity to save for retirement, impacting their ability to buy a home, and even delaying life decisions like starting a family. Young college graduates today are entering the workforce with historic sums of student debt, while older Americans are still paying off such debt years after graduation.
We look at some significant statistics about the increase and distribution of student debt in the United States, based primarily on data from the Federal Reserve and the Department of Education.
In 2020, student debt will be approximately $1.6 trillion, more than double the amount owed in 2008 ($600 billion). The increase in debt far outweighs the increase in the number of students, which has increased by only 2% among undergraduates and 12% among graduate students, according to the Department of Education.
- Student loan debt has been increasing at a higher rate than other types of debt.
Student loan debt has climbed at a faster rate than other household debt since 2004, and in 2010 it overtook both auto loan and credit card debt. Student debt is also the second most common source of household debt, after mortgage debt.
More Americans are borrowing to attend college, which is one of the key reasons for the large increase in student debt. From 8% in 1989 to 21% in 2019, the percentage of households with college debt has nearly tripled. This is also true for younger households, where the frequency of student debt has risen from 15% in 1989 to 41% in 2019.
Over the last several years, the average amount of such debt due per household has climbed significantly, contributing to the overall increase in student debt outstanding. Even after controlling for inflation, the average amount of student loan debt outstanding nearly quadrupled among households who took out loans from 1989 to 2019.
Over the last two decades, the average amount borrowed by graduate students has increased dramatically. According to the Urban Institute, the average annual debt for graduate students increased from $10,130 to $18,210 between 199596 and 201516 school years. During the same time period, the average annual loan for undergraduate students increased from $3,290 to $5,460. Overall, graduate education debt accounts for 56 percent of all student debt now owed.
The federal government is responsible for roughly 92 percent of all outstanding student debt, with private financial institutions lending the remaining 8%. That distribution differs significantly from a few decades ago, when private lenders supplied student loans that were subsidized and secured by the federal government.
- On average, women, Black borrowers, and students at for-profit colleges owing more federal student debt than other borrowers.
Women have about $3,000 more in college debt than males, or 10% more. Black borrowers owe almost $13,000 more than white borrowers, or about 50% more. Debt levels can be affected by factors such as graduate school enrollment rates, type of college attended, and economic consequences after graduation. Borrowers who attended private, for-profit institutions, for example, owing nearly $14,000, or about 50%, more than those who attended public or private, non-profit colleges.
- For-profit students and Black borrowers have the highest default rates on federal student loans.
Borrowers who attended for-profit universities have a greater default rate than those who attended non-profit or public schools, owing to higher average debt levels as well as inferior earnings and employment results. According to the most recent data available, 34% of students who started their education at a for-profit institution in the 20112012 academic year and entered federal debt repayment by 2017 failed on their loans. Black borrowers have a high default rate of 29 percent, which is more than double the white borrowers’ rate of 12 percent. This is partly owing to greater enrollment rates at such colleges. Women and men fail on federal loans at similar rates (17 percent and 16 percent, respectively).
- The number of federal student loans in default or delinquent has been rising in recent years.
The amount of federal student loans in default or delinquent was rising before the federal government temporarily suspended payments because to the COVID-19 outbreak. The amount of such loans has nearly doubled in the last several years, from $178 billion in 2016 to $263 billion in early 2020.
According to Federal Reserve analysts, student debt may lower the homeownership rates of households headed by young adults. The homeownership rate for all households fell by 4 percentage points between 2005 and 2014, while the rate for households led by someone aged 2534 fell by approximately 9 percentage points. Other studies have found that student debt has ramifications across the economy, including stifling small company growth, reducing Americans’ ability to save for retirement, and even delaying marriage and family formation.
Why college debt is a problem?
In the simplest words, student debtors are facing a crisis as their average debt grows and their average wage decreases. To put it another way, many indebted college graduates and non-graduate borrowers are unable to repay their obligations. Repayment becomes less likely if outstanding debts continue to accrue interest.
In 1996, the average graduate had $12,750 in student loan debt ($21,930 in 2021 values). 1996 graduates with outstanding loans owed an average of $16,500 ($22,110 in 2021 values) apiece just over ten years later.
If a borrower defaults on payments, the ensuing damage to their credit score makes alternative debt relief options, such as refinancing, unavailable. When a borrower loses access to further lines of credit, such as a car loan, a mortgage, or loans to pursue a higher education, the borrower is likely to become even more in debt.
- Prior to the CARES Act, $90.5 million, or 12.4% of debt in repayment, was past due in the first fiscal quarter of 2020.
- In 2020, despite federal relief measures, total student debt grew by 8.28 percent.
- 9% of borrowers who attended public universities were delinquent on their student loans.
- 15.1 percent of student loan borrowers under the age of 40 are delinquent on their payments.
- Half of student borrowers owe $20,000 on outstanding loan debt 20 years after starting school.
Why did student debt get so high?
Student loan debt has gotten out of control for a variety of reasons. Tuition increases, state budget cuts, borrower behavior, and even major selection all play an impact. To begin with, tuition rates have risen dramatically in recent years.
Why is the cost of college so high?
What is the reason for the high cost of college? There are numerous causes for this: expanding demand, increased financial aid, less state support, the skyrocketing expense of administrators, and bloated student amenity packages, to name a few. The most costly universities, such as Columbia, Vassar, and Duke, will set you back well over $50,000 a year in tuition alone. That’s not even include the cost of living! College costs have spiraled out of control. So, what are your options for resolving the issue? Well, nothing really, but if you’re clever, you can get around it, especially with the rising online college sector’s options. We’ll figure out why education is so expensive and show you how to save money.
Why are college students debt?
Student loan debt is exacerbated by rising college fees and the need to compete in the job market. Almost a third of American students now have to borrow money to pay for college. Those who do not finish their degrees are more likely to default on their loans.
How bad is college debt?
Total student debt in the United States is $1.67 trillion as of June 30, 2020, with over 44.7 million borrowers. In the class of 2020, the average graduate owed $37,584 in student loan debt, with some students owing significantly more. This amount can be substantially higher if you focus on specific job fields, such as the average student loan debt of a medical degree.
It’s unsurprising that some people will fail on their loans given those figures. However, did you realize that the delinquency or default rate on student loans is actually 11.2 percent? That means that one out of every ten people with student loans has fallen substantially behind, if not entirely defaulted, on their payments, and one out of every three is at least late on their payments.
How much college debt is too much?
How much you believe you’ll make after college can help you figure out how much debt you can afford. The rule of thumb we employ is that during your first year out of college, you should not borrow more than your starting wage. This assures that you will be able to comfortably repay your school loans. You shouldn’t take out more than $40,000 in total student loans if you expect to make $40,000 in your first entry-level job following graduation.
What is driving the 1.5 trillion student debt crisis?
For good reason, rising tuition is a major focus of attention when it comes to student debt. Tuition climbed across the country as states reduced their investments in higher education. Between 2008 and 2018, published tuition at public four-year institutions increased by 36%. Tuition increased considerably more in many states. State financing per student is now 8.7% lower than it was before the Great Recession, which should be a red flag given the present economic climate.
That is why many people advocate for tuition-free public colleges. However, because tuition isn’t the main cause of student debt, this will not suffice in the future. Whether students live on camps or not, the whole cost of college includes living expenditures such as textbooks and lodging and board. The cost of living is actually more than the sticker price of tuition.
How can college debt be avoided?
You may apply to schools only because their brochures are beautiful or their quads are attractive and then deplete your wallet.
Alternatively, you can be more deliberate in your college selection. As someone who has employed a lot of individuals over the years, I can tell you that employers only think about your college name if it’s an Ivy.
So, unless you have the grades, test scores, and sheer admissions luck to attend an Ivy League school, get your abacus out and start planning for the most cost-effective approach to get the degree you want.
Attend a Free College
Yes, you read it correctly: there are some colleges in the United States that are absolutely free. Tuition and fees are provided by the college, so you only have to pay for room and board and living expenses.
A list of 35 tuition-free colleges has been compiled by College Consensus. The majority have an estimated tuition value of $15,000 to $35,000, and acceptance rates range from 40% to 7%.
Some of these schools, such as College of the Ozarks, compel students to labor on campus for a certain number of hours each week. While some are liberal arts universities, others specialize in fields such as engineering or music.
Attend a Community College First
Although many recent high school grads want to attend a four-year university, community college can save you thousands of dollars per semester.
Community college classrooms are also significantly smaller than enormous university lecture halls, allowing you to receive more individualized attention in your preparatory programs.
You can transfer to the university where you intend to graduate after a year or two of earning credits. Employers will never know you “hacked” your school expenditures because your CV will display your graduation college, not the community college.
To prevent spending time and money on worthless classes, be sure that all of the credits you’ve earned at the community college fully transfer to the college you wish to attend.
Living with your parents not only saves you money on tuition, but it also saves you money on housing and board.
Attend an Online University
While official data isn’t available yet, anecdotal evidence suggests that online schooling became more popular in the aftermath of the coronavirus outbreak. Look into an online university if you don’t mind living at home with Mom and Dad for a few more years.
You can also use online college as a modern variant on the community-college-to-university path, enrolling for a year or two before transferring your credits to a four-year university. Do your homework first by ensuring that your chosen college recognizes all of your online course credits.
Apply for the Honors Program
Apply to college honors programs if you have a great academic record and excellent ACT or SAT scores. I was in a public university’s honors program, which gave a tuition discount as well as preferential housing and academic placements. Some community colleges will cover your entire tuition, fees, and books.
The requirements differ from one school to the next. They may need an interview, essay, or other extra work in addition to strong test scores and a high GPA when applying. Expect these programs to be competitive; a high GPA isn’t a guarantee of acceptance.
Apply to a Few Prestigious Universities Too
While it may seem contradictory, affluent donors generally contribute more to more expensive and prominent universities. Their larger endowment and deeper coffers mean more grants and scholarships.
Scholarship offers aren’t guaranteed because more prestigious schools receive more applications, but don’t dismiss them just because the base tuition amount is exorbitant.
Look Abroad
My wife works as a college counselor at American schools in other countries, where she assists high-achieving students in getting accepted to prominent colleges in the United States and around the world.
Given the exorbitant costs of American institutions, she frequently steers her top students away from them.
Begin by looking into universities in the Netherlands, which provide a very high return on investment. Their university system is excellent and affordable when compared to American tuition, but expect fierce competition as a result. Yes, many of them do everything in English.
Fill Out Your FAFSA as Soon as Possible
Even if you or your parents earn too much money to qualify for need-based financial help, filling out the Free Application for Federal Student Aid (FAFSA) is a good idea (FAFSA).
You can fill out the application before deciding the institution you want to attend. In fact, completing it before making a decision can assist you in weighing the financial aid offered by several schools.
The government’s Federal Student Aid website is where you submit your FAFSA application. Each year, enrollment begins on October 1 and ends on June 30 at midnight.
A word of advice: submit yours as soon as possible after October 1st. Students who apply within the first three months of the acceptance process receive twice as many grant offers, according to College Ave.
A student assistance report is sent to you a few days or weeks after you submit your FAFSA (SAR). Your SAR will tell you if you are eligible for a federal grant, such as the Pell Grant, as well as work-study and other government assistance programs. It doesn’t tell you how much financial help you’re eligible for because that is determined by the school.
Some schools receive more cash than others, and this funding is frequently restricted. The sooner you file your FAFSA, the sooner the schools you apply to will know what kind of financial aid package you qualify for.
If you wait too long to apply, all available grants and work-study assistance at your top-choice colleges may be gone.
Take College Courses in High School
You can enroll in a college course or two while still in high school.
These are often offered during the school year or during the summer break by community colleges and do not require a high school diploma to attend. In addition to traditional in-person programs, you now have more online possibilities. It may be a viable option for kids who do not meet the requirements for AP classes in high school but still want to gain a head start on their college studies.
You can eliminate a semester’s worth of general education requirements by taking a class or two at a community college during two high school semesters. This can result in thousands of dollars in tuition savings.
Negotiate Tuition
Call your first-choice college’s admissions office if the scholarship or aid you desire isn’t available. Describe your situation: You were offered a superior financial aid package by another school, but you would rather attend theirs. Before contacting a decision-maker, you may need to speak with numerous persons in the office.
Don’t be hesitant to play alternative cards like work-study programs, student ambassador programs, or volunteer work. Until you inquire, you’ll never know what the school wants (other than money).
Will student loans crash the economy?
Student debt has a long-term effect on borrowers, increasing loan burdens, reducing credit ratings, and ultimately limiting their purchasing power. Because student debt affects young people disproportionately, they will be less able to engage in and contribute to the economy in the long run.
“What you want is a broad range of investing opportunities over time. That is beneficial to the economy. That is beneficial to Wall Street “Richardson explains. “If you don’t have it, you’re going to have slower growth from the prime-aged working population, which is an issue.”
How much does 4 years of college cost on average?
The majority of most college students’ educational costs are made up of tuition and fees.
- In-state tuition and compulsory fees at public 4-year colleges average $9,308 per year, whereas out-of-state tuition and fees average $26,427.
- Tuition and costs at private four-year nonprofit colleges average $35,801 per year, while tuition and fees at for-profit colleges average $15,156 per year.
- In-district tuition and fees at public 2-year schools, or community colleges, average $3,412 per year; in-state students pay $4,444, while out-of-state students pay $8,516.
- Nonprofit students pay $17,128 in annual tuition and fees at private 2-year universities, while for-profit colleges charge $15,821.
- The average annual tuition and fees for the comparably few colleges that offer programs of less than two years are $12,735.
- The majority of institutions classified as fewer than two years are private, for-profit schools.
- There isn’t enough data on these organizations to draw much statistical significance.
Historical Average Cost of Tuition
Even after accounting for inflation, the cost of tuition has risen dramatically over the last 40 years.
- Tuition at a four-year public college in 1963 was $243 per year, or $2,078 today when adjusted for inflation.
- The average tuition increase for 2-year universities was $1,005 or 41.2 percent between 2010 and 2020.
- The average tuition at four-year universities climbed 34.3 percent, or $2,448 at public institutions, and 48.9 percent, or $10,881 at private institutions.
- In 1989, a bachelor’s degree cost $52,892; by Fall 2020, a bachelor’s degree would cost $101,584.
Average Cost of Books & Supplies
Because certain curricula necessitate more costly materials than others, the price of books and supplies varies greatly.
- Students at public four-year universities spend an average of $1,334 a year on books and supplies.
- The average cost of books and supplies at private, non-profit colleges is $1,308, while the average cost at private, for-profit institutions is $1,194.
- Students at public 2-year colleges pay an average of $1,585 per year for books and supplies.
- The average cost of books and materials at private, nonprofit universities is $1,061; for private, for-profit 2-year colleges, the average cost is $1,393.
Average Cost of Room & Board
The cost of room and board is determined by whether the student lives on or off campus.
- Room and board costs at 4-year universities range from $10,216 to $11,945.
- On-campus students pay an average of $11,451 a year for room and board at public 4-year universities, while off-campus boarders pay $10,781.
- On-campus boarders pay an average of $12,682 per academic year at private, nonprofit universities, while students living off campus spend $9,762.
- On-campus room and board costs an average of $10,654 at private, for-profit universities, while students living off campus pay an average of $8,027.
- Students living on campus spend an average of $7,165 for their annual room and board at public 2-year universities, while students living off campus pay $9,316.
- On-campus boarders pay $11,723 per year at private, nonprofit 2-year universities, whereas off-campus boarders pay $9,429 per year.
- For room and board, private, for-profit universities charge an average of $10,369; students living off campus pay $9,222.
Average Additional Expenses
Transportation, personal care, and entertainment may be factored into the total cost of college attendance. These costs differ depending on the state of the local economy and the student’s housing situation.
- Students at a public four-year university who live on campus spend an extra $3,493 per year on average.
- If they do not live with family, students living off campus can expect to pay $4,221 in additional expenses; those living with family can expect to pay $4,253.
- Students living on campus at private, nonprofit 4-year universities spend an average of $2,758 on extra expenses.
- Students who live off campus alone or with nonfamily members pay $5,527 on additional living expenses, compared to $4,236 for students who live off campus with family.
- Additional costs for students living on campus average $4,748 for private, for-profit universities.
- Students who live off campus on their own spend $4,254 on average, while those who live off campus with their families spend $4,497.
- Additional costs for 2-year colleges range from $3,349 to $4,278.
- Students at a public 2-year university who live on campus pay an extra $3,401 per year on average.
- Students who live off campus pay an average of $4,271 in annual expenditures; students who live off campus with family pay an average of $4,197.
- Students at 2-year private, nonprofit universities who live on campus pay an extra $2,650 a year on average.
- Students living off campus alone or with nonfamily members pay $4,642, compared to $4,726 for students living off campus with family members.
- If they reside on campus, students at private, for-profit 2-year universities pay an average of $3,773 on additional expenses.
- If they do not live with family, students living off campus spend an average of $5,039; students living off campus with family spend an average of $4,464.
Average Cost of Lost Income
One of the most significant costs for college students may be the loss of prospective revenue due to time spent studying rather than working.
- A high school graduate’s average weekly wage is $763, or $39,676 per year.
- The average high school graduate makes $158,704 in four years, or $108,649 after taxes.
- Housing insecurity is 61 percent more common among military veteran students, while homelessness is 23 percent more common.
- Over half of 2-year pupils and 44 percent of 4-year students are concerned about running out of food.
Average Cost of Borrowing for College
The majority of students borrow money to pay for college and then pay back the amount plus interest. The longer a student is in school, the more this accumulates.
Average College Costs by State
State-by-state and year-by-year, the average cost of in-state tuition and fees vary. The tuition differential alone is more over $11,000.
- The most expensive public schools are in the Northeast, specifically in and around New England.
- The average public university tuition in the ten most costly states is $14,297.
- The cheapest public schools are in the South and Plains, and the cheapest private schools are primarily in the South.
- In the states with the most affordable public institutions, the average tuition is $6,988.
Is going to college even worth it?
College graduates also make around 73 percent more than high school grads, according to The College Board, and those with advanced degrees earn two to three times as much as high school graduates. On average, college graduates earn $1 million more than high school graduates over the course of their lives. A new study by the Brookings Institution found that college graduates live healthier and longer lives in the long run. While the expense of a bachelor’s degree is not insignificant, the benefits that graduates receive over the course of their lives far outweigh the original outlay.
Is college a waste?
College, on the other hand, may be a waste of time and money if you want to use your time to build talents that will earn you more money than a college diploma. College is a worthwhile investment for the vast majority of people. It may take some time for the investment to pay off, but for the most part, it will.
