Debt Slaves, Part 1: Million Dollar Student Loans And The Coming Bailout

Today’s Wall Street Journal is profiling an orthodontist who has $1 million in student loans, is paying less than the interest that’s accruing, and because of this will owe $2 million in the not too distant future.

The list of things that have to happen for a situation like this to evolve is long and improbable. But apparently less so all the time. The Journal reports that 100 other Americans are now in similar straits, up from 14 five years ago.

For some reason dental school is especially pricey, but tuition continues to rise pretty much across the board, thus saddling at least one generation with debts that in the aggregate now total about $1.5 trillion.

Some stats of note, courtesy of the StudentLoanHero website:

• $1.48 trillion in total U.S. student loan debt
• 44.2 million Americans with student loan debt
• Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
• Average monthly student loan payment (for borrower aged 20 to 30 years): $351
• Median monthly student loan payment (for borrower aged 20 to 30 years): $203

And here’s a chart with a couple of important features. Note that grad students are the ones doing the most aggressive borrowing, with parents not that far behind. Which means two things: First, the brightest among us, who are going on for advanced degrees, are the ones being saddled with the most outrageous debts. Second, parents are also ramping up their borrowing, so the earlier assertion that student debt was encumbering “one generation” was false – it’s encumbering every generation as families share the burden.

student loans debt slaves

The take-away? Student loans are not a borrower-specific problem but a societal one because – as always – when a sector’s debt reaches a certain point the old adage “borrow $100 dollars and it’s your problem, borrow a million and it’s your bank’s problem” becomes relevant.

When the mortgage market blew up in 2007 the problem moved from homeowners to banks to everyone via the government bailout of the industry. With student loans the magnitude of the problem is approaching the same kind of breaking point, where a large enough segment of borrowers simply can’t manage and the resolution shifts from them to taxpayers. Note the double-digit default rate during a period of economic expansion. In the next recession expect a doubling or more of the number of former students who just give up and (metaphorically) pop their house keys into the mailbox.

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