Student Debt In The US Up From $772 Billion in 2009 to $1.6 Trillion in 2019
07 Jan 2020
Approx Reading time: 3 minutes
- Student debt has grown to $1.6 trillion, up by 107% compared to 2009 figures.
- In 2009, outstanding student debt stood at just $772 billion.
- Political candidates are now prioritizing solving the student debt crisis as part of their campaigns.
Leading causes are said to be the increasing costs of attending college financial illiteracy of the students.
In the past decade, one of the most discussed issues in the socio-political environment in the US has been student debt. According to data presented by the US Federal Reserve, over the past 10 years, the figure of the total outstanding student debt has increased by 107% to a staggering $1.6 trillion owed by around 44.7 million people.
This hike in the outstanding student debt balance is partly due to increased demand. For example, more than 50% of all college students subscribed to some form of debt in 2018. According to the analysis provided by the Federal Reserve, it can be challenging for many people to service their student debt after graduation.
The outstanding student debt balance was much lower a decade ago. For example, in 2009, it was estimated that around $772 billion was owed in student debt.
It is not unnatural for college aspirants to consider student loans to cover college tuition fees. College fees have increased significantly with the passage of time and, according to Ramit Sethi who works as a personal financial advisor in the country, taking out a student loan is most often the smart decision to make.
Sethi basis his analysis on the future employability and potential for higher compensation for a college graduate compared to someone without a college degree. According to studies, college graduates are able to make a million dollars more, on average, over the course of their life. Also, degree holders are also less prone to facing persistent unemployment.
Hence, if considered that a college degree, on average, eventually pays out $1 million more over the course of your life compared to someone without a college degree, then taking out $30,000 or less in student loan, on average, makes for a good investment, according to Sethi.
However, Sethi cautions that borrowers should still remain mindful of their affordability and ensure they would be able to service their loans in the future without placing great strain on themselves.
The magnitude of the problem has ensured that political candidates come with a plan to tackle the issue surrounding student debt. One such plan has proposed an Income-Share Agreement (ISA), which has now become very popular in universities. According to this agreement, the university pays for a student’s education in return for a percentage of the student’s salary after graduation.
Greater financial literacy may also be an impediment to solving the student debt crisis. According to one study, around 33% of all young adults in the US are estimated to be relatively financially illiterate and hence incapable of making rational financial decisions. This can lead to higher-than-necessary debt. Hence, critics are now calling for a greater focus on financial literacy in US schools so that students are capable of making rational financial choices once they become legal adults.