7 Charts Show How Student Loans Are Affecting America

Motley Fool co-founder and CEO Tom Gardner recently met up with the CEO of a large private investment firm (whose name we'll keep anonymous). Asked where he thinks trouble lurks in the economy, the CEO's views were sharp: "Student loans. You have a disaster in the making. My feeling is it will all fall apart in the next 24 months," he said.

"Virtually all of the collapses and all the scandals throughout financial history revolve around fixed income and debt. Just keep sniffing around those areas and you're going to find the problems," Tom recalled him saying.

This isn't a rare view. Many have pointed to student loans as the next shoe to drop. For-profit education companies like Corinthian Colleges (NASDAQ: COCO  ) and Apollo Group (NASDAQ: APOL  ) have seen their share prices shredded as it becomes apparent that the free-for-all student debt binge isn't sustainable.

The Federal Reserve has a nice report on student loans. Here are seven charts that put the boom into context.

1. Since 2004, all consumer debt has declined -- except for student loans, which have surged threefold:

2. Student loan balances have increased for all age groups. By percentage growth, the biggest gains have been borrowers age 60 and up:

3. This actually throws cold water on those who say student loans are burying most students in debt. The vast majority of student loan balances are under $25,000. The average car loan is more than the average student loan:

4. Still, the portion of young Americans with debt is surging:

5. And more and more of them are falling behind on their student loans:

6. Many are just kicking he can down the road:

7. And that has an impact on other parts of the economy. Young Americans with the most student debt have shunned buying a home more than any other group:

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  • Report this Comment On July 08, 2013, at 3:36 PM, valari25 wrote:

    7.25% on my student loan. Charging that interest rate on a loan backed by your life is bullsh!t. And because you can't discharge it in bankruptcy the lenders have zero incentive to not squeeze every last dime from borrowers.

  • Report this Comment On July 08, 2013, at 3:59 PM, CinCity wrote:

    In my honest opinion, anything less than 12% is too low for unsecured debt. The only thing I agree with in the current student loan program is that it never goes away, even in bankruptcy. I believe all unsecured debt (credit cards) should not be forgiven during bankruptcy. You bought "stuff" you couldn't afford, why should you get to keep the "stuff" but not the debt?

    Call me old-fashioned, I am 24 after all, but I will never finance something that I can't guarantee being able to pay it back by selling the item I financed.

  • Report this Comment On July 08, 2013, at 4:54 PM, valari25 wrote:

    Student loans aren't unsecured debt in any sense of the word. They are the most secure loans on the planet. Your very life is what backs those loans. You either pay them or you die with nothing.

    If you have a job, student loan lenders don't even have to go to court to garnish your wages. Federal law expressly allows them to send a letter to your employer and if your employer doesn't comply they can be fined up to $10000 a day.

    No job, but social security or disability? They can garnish those too. The IRS is the only other entity with that power.

    Any money you earn will get garnished with but a letter to the payer.

    You can't get a loan. You can't get a credit card. You can be denied jobs. You can be denied housing. Defaulted student loans stay on your credit for up to 10 years.

    No reset button. A signature here, another there, for the promise of a better education and better life and they own you until your debt is paid or you die.

    Because of their extraordinary collection powers and that lien on your very life, student loan lenders have no incentive to be flexible or charge reasonable interest rates. You pay up when they say, for how much they say or else.

  • Report this Comment On July 08, 2013, at 4:56 PM, valari25 wrote:

    You aren't old fashioned, just naive. You are talking about never getting a loan or using credit, ever. Unless you're rich, you are living in a rented apartment riding a bike.

  • Report this Comment On July 08, 2013, at 5:32 PM, XXF wrote:

    @val,

    Cin said that he would finance capital goods, so he would finance both a car and a mortgage.

    I can say, as another 24y/o that I think he's mistaken about shunning debt taken on to finance an education. I did it, graduated with about 32 grand in debt and accrued interest, and paid it off in 18 months. It was, without a doubt, the best investment I could possibly have made going forward in my life financially.

    The real trick is living within your means and taking responsibility for your choices. That means not buying a new $700 phone every two years or a new car for your first day of work. It means developing valuable skills that you can enter into voluntary contracts with people to sell them.

    The entire argument around student loans is about a group of entitled brats who took funds, behaved irresponsibly, and now don't want to be held accountable for their bad choices. You want a roadmap of how to go to college and come out successful on the other side, here it is:

    1. Work a paying job during college (data enter-er, grocery bagger, landscaper, construction worker, whatever)

    2. Earn a STEM degree (good grades)

    3. Choose for the myriad of job offers you receive with the benefits you prefer (money, location, hour expectations, projects, teams, perks, ect, and no, you cannot have them all, you can have as many as your skills merit)

    4. Live within your means

    For the life of me I do not know why these four steps elude my 'peers'.

  • Report this Comment On July 08, 2013, at 5:56 PM, valari25 wrote:

    You can't guarantee your house or car will have enough value to sell it to pay back the loan. And he specifically gave that as the prerequisite to financing a purchase.

    How many people followed your 4 steps only to not get that great job offer after college over these last 5 years? The real world has a way of wrecking even the best laid plans. Once you fall behind, the student loan machine can very quickly bury you for the rest of your life.

  • Report this Comment On July 08, 2013, at 7:44 PM, CinCity wrote:

    Student loan debt can eat you alive which is why I stayed as far away from it as possible. Call me crazy, but while I was in school I worked in a machine shop threading gigantic bolts that I couldn't even begin to tell you what they were used for. It was extremely dirty, very loud, and involved a lot of heavy lifting, but it paid more than enough to get me through school (actually had $10k in the bank when I graduated). It was the best thing I ever did. After I landed my first job, I saved all that I could while looking for a house. Two years later, after many turned down offers, a bank finally accepted my offer on an excellent 3 bed 2 bath home which I picked up for 60% of it's current value.

    Hard work and patience have been great to me. Had I not finished college, I would still be living quite nicely right now and not strangled by student loan debt.

  • Report this Comment On July 08, 2013, at 8:15 PM, Estrogen wrote:

    very hot topic in my household. I just cleaned out my garage and saw an old check to UC regents for $430 for a quarter from 1983. Another for $240/month for rent. I earned $10k/year working PT and with a little help ended up with no debt.

    Today's kids don't have as good a chance if they want the "4 year university" experience. Kids "deserve" the 4 year experience because they "worked" so hard in HS. At least that is what is being preached. Parents feel guilty so they sign on these loans.

    Colleges have parents day and even grandparents day where they march out the charismatic public speaking president, so they are glad to drop b/w $25 & $50k/year for jr.

    I saved $50k for my 3 daughters for their education. It will get 1 of them 2 years into it or 1/6th the way there in total. 2/3 might want/require a masters. Unfortunately, these kids (and half the parents) don't seem to have a clue of what they are signing up for.

    I refuse to sign on another loan except my 2.5% 15 year mortgage I just closed a couple months ago.

    My wife who has averaged $15k/year for last 18 years so she could raise the kids is willing to go back to work to pay for the shortfall. I say JC 2 years, live at home, work, rathole $ away. She says kids "deserve" 4 year experience.

    no right or wrong here, but I fear the end.

  • Report this Comment On July 09, 2013, at 11:41 AM, Johny205 wrote:

    You don't need a college degree to make good money. You can learn a good trade like construction or welding or 100 other trades. You get paid while you learn and after 5 to 10 years when your a master you start your own company and work your ass off. You work 70 hours a week for 3 or 4 years straight and have all equipment paid off and can easily make over 150K a year. Most people with degrees don't make nearly that and your stuck working for somebody, but then again most people can't comprehend working more than 40 hours a week to accomplish something.

    I also think unsecured debt should be at least 12%. It should be easier for creditors to collect payments on debt. You garnish someone's wages and you have to know where they work, go to the county seat for that county and pay the sheriffs department $90 to garnish their wages. The debtor shows that they have obligations, such as rent and child support ect... So after 6 months you get a check for $120 and you have to drive back to the county seat in which the debtor works AGAIN, and keep doing this every 6 months for a measly $30 gain.

    God bless America, the laws are designed to enable the lazy and corrupt. The hard working people get f@!#ed every time.

    If you are going to rack up debt for school, don't get a major in Sociology or some other BS degree that isn't even going to help get you a minimum wage job!

  • Report this Comment On July 09, 2013, at 12:03 PM, SkepikI wrote:

    ^ Yah, but if you go for Engineering or Science or Accounting, you will be working the wee hours while your friends in Soc and Ed are out drinking beer and having fun. Then you get to work long hours for good pay and have fun while they whine about their loan balances and interest rates.

    There is a lot of frustration in this perverse system, but eventually there is a reckoning, and then of course the political class caves in to the pressure and sends your hard earned money to the ditz class.

    Still, it took me more than 40 years post college to appreciate the satisfaction of making money the old fashioned way...earning it. But that's what you can count on, not equitable behavior from the ditz crowd in politics towards the ditz crowd in "higher ed"...TANJ

  • Report this Comment On July 09, 2013, at 2:41 PM, XXF wrote:

    I personally know zero people with four year STEM degrees (earned in four years even) and good grades who didn't get multiple job offers, but I do know plenty of people with Humanities degrees and GPAs lower than their blood alcohol content who are unemployed or underemployed. I just lived through all of this and in my admittedly non-scientific non-representative experience struggling after college is entirely based on a lack of work ethic and responsible choices.

  • Report this Comment On July 10, 2013, at 9:44 AM, damon1085 wrote:

    I'm surprised more people haven't acknowledged that WHAT you go to college for plays a massive factor in your future student loan debt. Johny205 touched on it, "... don't get a major in Sociology or some other BS degree..." Which is a large part of the problem. I can't count the people I know who spent 4 years in school to get a history, sociology, or some other 'fine arts' degree who now can't find a job or are waiting tables. On the other hand, I don't know a single person who went into physics (like myself) or engineering who isn't working right now.

    Personally, I came out of college with ~$25k in debt. 5 years later, my student loans are gone and I've already bought a home. Why? Because I chose a good degree (physics) with decent grades and, more importantly, a good work ethic, which allowed me to land a good job before I even got my diploma.

    Another problem is the choice of school for many people. You and/or you family can't afford the $50k a year private school with the big name? Fine, go to the in-state school that costs $15k a year or less. Can't afford that? Go to a community college for 2 years then transfer to a university to finish your degree. There are ways to do it "cheaply," you just have to make the right choice.

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