Kristian Rouz – US student debt has ballooned since the mid-2000s due to Obama-era ultra-low borrowing costs, the lack of wage growth, and the growth in the number of zombie-economy low-paying jobs. Subsequently, a significant share of university graduates are now facing career-ruining bankruptcies due to problematic personal finances resulting from the credit-fueled economic expansion of the past eight years.
US student debt outstanding has reached $1.5 trln, comparable to the annual GDP of South Korea or Canada. Defaults on this stunning debt burden have also increased, as an average student struggles to service his or her $200,000 in debt obligations by working unrewarding jobs.
According to the Federal Reserve Bank of New York, student debt has risen from $500 bln to the current $1.5 trln in just a decade, between 2006 and 2016. Meanwhile, students attending for-profits colleges are exposed the most to the high risks of default.
The Fed found that former students in their early 30s who had graduated have the highest default rate, at 39 percent for four-year programs and 42 percent for two-year programs. Default rates for students who had enrolled in a public two-year college stand at 36 percent.
Students in their mid-20s are facing an average 17.5-percent default risk, almost regardless of the type of college and program. This is because people in this age group are most likely to be still covered by their parents’ health insurance – up to the age of 26, thanks to Obamacare. They typically have not yet been married or tried to purchase a home, and their car loan payments are also commonly covered by a family member.
These trends are poised to exacerbate as millennials near their late 30s and early 40s.
A separate report from the Consumer Financial Protection Bureau (CFPB) says 25 percent or one in four student loan borrowers is either behind in his or her payments or is struggling to meet them.
The New York Fed also notes that by age 33, graduates with liberal arts degrees are far more likely to default than STEM majors. Jobs in liberal arts-related fields are scarce, mostly low-paying, and depend on connections, personal relationships, and other forms of nepotism and corruption. STEM graduates, however, have difficulty finding factory work, which is also hard due to the ongoing de-industrialization of the US.
Humanities majors reflect highest student loan default rates, exceeding 25% in community colleges. What gives? pic.twitter.com/KclmmuYy5r— William Corley (@ChipCorley) 20 ноября 2017 г.
"Both Business and Vocational majors default at higher rates than STEM majors, but at rates closer in magnitude to STEM majors than to Arts majors," the New York Fed says.
By age 33, some 26 percent of liberal arts majors have defaulted on their debt, 22 percent of business majors default as well. Only 17 percent of STEM majors and 19 percent of vocational school graduates default by that age.
Dropouts fare much worse, the New York Fed notes.
"Our data show that students who drop out before earning a degree, enroll in an associate degree program as opposed to a bachelor’s degree program, major in the arts, attend a for-profit institution, community college or non-selective college, or come from a less advantaged family background are more likely to default by their late twenties compared to their peers," researchers conclude.