The Student Loan Debt Problem

posted 6/19/2015 in General

Graduation season is upon us! Education, particularly post-secondary education, is an important part of American life. In a recently released poll from the Gallup-Lumina Foundation, 96 percent of Americans said it is “somewhat” or “very” important for adults in the United States to have a degree or certificate beyond high school.

Earnings statistics back up the importance of degrees as well. In a 2014 Pew Research Center report, millennials ages 25-32 with a four-year degree had median earnings of $45,500, while those who only graduated from high school had median earnings of $28,000.

So, going to college and getting a degree is important for a better financial future. However, the cost of going to college and the student loan debt that comes with it is becoming a tougher burden to overcome.

Before 2009, student loan debt comprised the smallest form of household debt. Today, it is the highest. The Federal Reserve Bank of New York recently studied America’s student loan problem, revealing:

  • Many borrowers are delaying repayment or are defaulting

  • There are 43 million borrowers, owing an average of about $27,000

  • 39 percent borrow less than $10,000

  • 4 percent (about 1.8 million people) owe more than $100,000

  • Growth of student debt appears to stifle household formation and homeownership

  • Iowa college seniors from the graduating class of 2012-2013 owed an average of $29,456 (

While graduating from college increases earning potential, it also saddles millions of kids with thousands of dollars in debt. The message to college graduates seems to be “Congratulations on all your hard work in preparing for the real world. Now that you’re here, here’s $40,000 in debt for you to pay off.”

You can blame the rising cost of college on inflation. However, as this chart illustrates, college education prices have grown at an exponentially higher rate than the consumer price index. 

And here’s the scary part: this indebted generation of Millenials will make up half of the workforce within five years. Millenials (18 to 35 year olds) made up a quarter of the workforce in 2014. By 2020 that number will increase to 50 percent according to a recent PWC “Millenials at Work” survey. An economy where half of the workforce is paying off student loans is a big concern.

Final Thoughts

So, let’s look at this vicious cycle from a high-level view:

  • Fact: 96 percent of Americans view post-secondary education as important

  • Fact: those with four-year degrees out earn their counterparts with only high school diplomas by nearly about $20,000

  • Fact: the price of a college education has risen by nearly 600 percent since 1980

  • Fact: student loan debt is now higher than credit card debt and auto loan debt

More jobs require higher degrees, meaning more people need to attend college. College prices keep increasing while wages do not, so many people cannot afford college or have to take on debt to do so. Upon graduation, jobs are hard to come by, especially ones that allow for the income needed to pay off student loan debt.

The “Student Loan Debt Problem” is a large problem in the U.S., and it is only growing bigger every day.  It’s time to take action as a society and change how we approach educational spending.  Careful planning for education expenses is more important now than ever before.  Let the financial professionals at LSB help you plan for the expenses of your child’s education now rather than later when it’s too late for anything except student loans. 

Lincoln Savings Bank, Member FDIC

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