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The Bill Always Comes Due

Submitted by Jill Yoshikawa, Ed M, Partner of Creative Marbles Consultancy on August 6th, 2014

An unprecedented $1.2 trillion in student debt has grown exponentially in the last several generations, showing few signs of abating. In less than one generation, college graduates have tripled their debt burden. According to the Wall Street Journal, over 70% of the Class of 2014 will graduate college with an average of $33,000 in student debt. The convergence of multiple, complex social and economic issues fuels the unrivaled borrowing, and may potentially handicap multiple generations.

Average_Debt(thumbnail).WSJ

2014 Average Student Debt

Record numbers of students are applying to college, having grown up believing a college degree is the foundation for prosperity. Colleges scramble for the necessary financial resources to expand capacity that will accommodate the increased demand of students. However, states—forced to balance their own budgets—are simultaneously reducing financial support for universities. Left with few alternatives, colleges raise tuition at rates that outpace even those double digits rises seen in healthcare. Unfortunately, while college costs slope skyward, median income for American families remains flat. Thus, student loans are filling the gap between languishing incomes and triple-digit percentage hikes in college tuition.

CMC_Debt(new).2014Recent college graduates, who borrowed under the aforementioned circumstances, face a multi-faceted conundrum. Persistent underemployment and unemployment, combined with stagnant income and ever-present inflation may help explain why $124 billion or 11.7% of all Federal student loans are currently 90+ days delinquent. To add insult to injury, no matter the threat of default, student loans cannot be discharged under current bankruptcy laws, creating a chokehold over borrowers into financial perpetuity.

Facing economic insecurity, young adults are delaying marriage, starting families, and purchasing homes. Thus, current twenty and thirty-somethings may become the first generations since WWII who are not expected to amass more wealth than their parents. Moreover, the effects of a less settled and debt-addled workforce trying to support the largest and rapidly aging generation in history is, at best, a tenuous economic proposition.

Society may not escape the repercussions of run-away growth in student debt. After a lifetime of indoctrination promoting bachelor’s degrees as a guarantee of future success, generations of youth willingly borrow to pay increasingly unaffordable, yet unabatedly mushrooming tuition. Finally, current college graduates find themselves burdened by student debt, un- and under-employed, and generally bereft of the economic prosperity enjoyed by previous generations, while nevertheless still expected to fund the long-ago promised pensions of their parents. Something’s bound to give.

 

Original Graphic from Hubbubbaloo Creative

Chart from The Wall Street Journal, May 16, 2014

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