Ageing Private-School Millennials Most Likely to Default on Student Debt
AP Photo/ J. Scott ApplewhiteBusiness18:24 22.11.2017(updated 18:27 22.11.2017) Get short URL
The US student loan burden is out of control, while the economy has failed to back it up with sustainable wage growth or market-competitive job creation. Meanwhile, nepotism, patronage and other practices hinder the process of securing a career path further hindering the ability of young workers to service student debt.
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.
READ MORE: US National Debt Clock Removed in NY After Hitting Historic $20 Trillion Mark
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.
However, as time goes by, discrepancies emerge, with default rates among private non-profit and public college graduates being the lowest – at 17 percent and 20 percent for four-year program graduates in their early 30s.
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.
“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.