Student Loan Debt Not a National Crisis, Expert Panelists Say

We've been covering student loan debt issues here. We've noted the increase in the amount of student loan debt in the U.S. (now over $1 trillion), the significant default rate, and the large expeditures made by the U.S. government given that it guarantees many student loans made by private lenders. Go, for instance, here, here, and here. 

As explained in this article in the Chronicle of Higher Education, yesterday a panel of experts speaking at a national education conference said that though student loan debt is growing and there are real problems that must be addressed, there's no national crisis. Here's an excerpt:

Warnings of an impending student-loan-debt bubble are sensationalized and overblown, said panelists at a national higher education conference here on Thursday, and those false alarms are distracting policy makers from real problems that are plaguing student borrowers. ... In fact, ... the typical student borrower has a much different profile than is often portrayed in news-media reports on student-debt trends. In a study ... conducted [by Kelly D. Edmiston, a senior economist for the Federal Reserve Bank of Kansas City], ... Mr. Edmiston found that the median student debt—the middle range for all borrowers—is less than $14,000. The average student debt is significantly higher, at more than $24,000, due to the 25 percent of borrowers who owe at least $30,000 for their college education. Still, another quarter of student borrowers owe less than $6,000, Mr. Edmiston found, and less than 3 percent have debt exceeding $100,000. Nearly 11 percent of student borrowers are now delinquent on their payments and, according to the most recent federal data, nearly 9 percent of student loans were in default in 2009, Mr. Edmiston said. Although the number of defaults is on the rise, it is nowhere near the 22-percent level of 1989 and still represents a tiny fraction of the federal budget. While the level of student borrowing is not yet at crisis levels, speakers said, there are problems with the number and amount of college loans, and serious policy considerations that need to be made, such as how to better inform students about the amount of money that they really need to borrow and what kind of loan they are receiving.

Comments

[Brian]

Thanks for commenting Richard.

[riisacoff]

I cannot dispute the stats thrown out by the experts on the Panel. However, they have not addressed the securitization of Student Loan Debt. The info on the mortgage business was not unlike the Panel's analysis of Student Loans. Most mortgagors were paying. Delinquency, while higher than expected didn't pose a threat. Even the defaults and foreclosures were deemed to be an aberration. WRONG

The private student loan market and even the underwriting in the GSE realm became sloppy at best. Collection activity has become draconian. As a lender (paast life) I would tell borrowers that if they didn't pay I'd repo their dentures and first-born. Today, I'd leave out the first-born - they are on the market: "You can have him/her. Just send 'em back once college is over and paid!

Lending with no risk. That's what securitization has done. Investors have the risk but as we saw after the initial panic, RMBS came back to most of value. That's why modifications have been difficult and "Principal Reductions" are treated as TREASON. Don't cut my bond payment - the new battle-cry.

Address the entirety of the Student Loan debt, not just a fraction of the stats. Oh, it seems that the Panel forgot to discuss the unemployment problem. For graduates it's like "Being all dressed-up with nowhere to go"!

Richard Isacoff
isacofflaw@msn
@riisacoff