The Student Loan Debt Crisis Is About to Get Worse

The next generation of graduates will include more borrowers who may never be able to repay.

While Wall Street and U.S. President Donald Trump tout news of a booming stock market and low unemployment, college students may be quick to roll their eyes. The improved economy has yet to mean higher wages for graduates already struggling to pay down massive debt, let alone ease the minds of students staring down the barrel of six-digit loan obligations yet to come.

Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition and borrowing continue to rise, the result is a widening default crisis that even Fed Chairman Jerome Powell labeled as a cause for concern.

Student loans have seen almost 157 percent in cumulative growth over the last 11 years. By comparison, auto loan debt has grown 52 percent while mortgage and credit-card debt actually fell by about 1 percent, according to a Bloomberg Global Data analysis of federal and private loans. All told, there’s a whopping $1.5 trillion in student loans out there (through the second quarter of 2018), marking the second-largest consumer debt segment in the country after mortgages, according to the Federal Reserve. And the number keeps growing.

Student loans are being issued at unprecedented rates as more American students pursue higher education. But the cost of tuition at both private and public institutions is touching all-time highs, while interest rates on student loans are also rising. Students are spending more time working instead of studying. (Some 85 percent of current students now work paid jobs while enrolled.) Experts and analysts worry that the next generation of graduates could default on their loans at even higher rates than in the immediate wake of the financial crisis.

“Students aren’t only facing increasing costs of college tuition; they’re facing increasing costs of borrowing to afford that degree,” said John Hupalo, founder and chief executive officer of Invite Education, an education financial planner. “That double whammy doesn’t bode well for students paying off loans.”

Student loan debt currently has the highest 90+ day delinquency rate of all household debt. More than 1 in 10 borrowers is at least 90 days delinquent, while mortgages and auto loans have a 1.1 percent and 4 percent delinquency rate, respectively, according to Bloomberg Global Data. While mortgages and auto loans have experienced an overall decrease in delinquencies since 2010, student loan delinquency rates remain within a percentage point of their all-time high in 2012.

Delinquencies escalated in the wake of the Great Recession as for-profit colleges pitched themselves as an end run around low-paying jobs, explained Judith Scott-Clayton, a Columbia University associate professor of economics and education. But many of those degrees ultimately proved useless, leaving graduates with debt they couldn’t pay back.

Students attending for-profit universities and community colleges represented almost half of all borrowers leaving school and beginning to repay loans in 2011. They also accounted for 70 percent of all defaults. As a result, delinquencies skyrocketed in the 2011-12 academic year, reaching 11.73 percent.

Today, the student loan delinquency rate remains almost as high, which Scott-Clayton attributes to social and institutional factors, rather than average debt levels. “Delinquency is at crisis levels for borrowers, particularly for borrowers of color, borrowers who have gone to a for-profit and borrowers who didn’t ultimately obtain a degree,” she said, highlighting that each cohort is more likely to miss repayments on their loans than other public and private college students.

Those most at risk of delinquency tend to be, counterintuitively, those who’ve incurred smaller amounts of debt, explained Kali McFadden, senior research analyst at LendingTree. Graduates who leave school with six-figure degrees that are valued in the marketplace—such as post-graduate law or medical degrees—usually see a good return on their investment.

Hupalo agreed. “There’s a systemic problem in the student loan market that doesn’t exist in the other asset classes,” he said. “Students need to get a job that allows them to pay off their debt. The delinquency rate will rise as long as students aren’t graduating with degrees that pay back that cost.” Moreover, while college dropouts and for-profit graduates often struggle to find jobs with high enough wages to pay for their education, minority graduates are more likely to face discrimination in labor markets, making matters worse.

The cost of borrowing has also risen over the last two years. Undergraduates saw interest on direct subsidized and unsubsidized loans jump to 5 percent this year—the highest rate since 2009—while students seeking graduate and professional degrees now face a 6.6 percent interest rate, according to the U.S. Department of Education. (The federal government pays off interest on direct subsidized loans while borrowers remain students, or if they defer loans upon graduation, but it doesn’t cover interest payments on unsubsidized loans).

“If you’re in an interest-based plan, you see cost go up, which worries me for students who are in school and have seen debt go up before they’ve even finished,” Scott-Clayton said. She said borrowers with smaller amounts of debt—those most at risk of default—should take advantage of income-based repayment plans, if they can.

The deepening student debt crisis isn’t just bad news for students and recent graduates. The delinquencies that come with it may have a significant negative impact on the broader economy, Fed Chairman Jerome Powell told Congress earlier this year.

“You do stand to see longer-term negative effects on people who can’t pay off their student loans. It hurts their credit rating; it impacts the entire half of their economic life,” Powell testified before the Senate Banking Committee in March. “As this goes on, and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.”

“Students shouldn’t assume their loan servicer has their best interest in mind.”

As young adults struggle to pay back their loans, they’re forced to make financial concessions that create a drag on the economy. Student debt has delayed household formation and led to a decline in homeownership. Sixteen percent of young workers aged 25 to 35 lived with their parents in 2017, up 4 percent from 10 years prior, shows Bloomberg Intelligence.

“You have a whole generation of people that have a significant amount of student loans and its crimping demand for other goods and services,” said Ira Jersey, the chief U.S. interest rate strategist for Bloomberg Intelligence. “As people live with their parents, or cohabit with a non-partner, millions of houses and apartments aren’t being purchased. Neither is Wi-Fi or that extra sofa. We think this is having a significant impact on the economy.”

Still, Jersey doesn’t think the student debt crisis is as severe as the subprime collapse of a decade ago. “It’s much different than mortgages,” Jersey said. “Even though it’s a crisis in that it increases the deficit, and taxpayers have to pay more over time, it doesn’t present a systemic financial sector risk like mortgages in 2007.”

However, that doesn’t offer much consolation to students, six in 10 of whom report frequent anxiety about their debt, according to a report from Chegg, an education technology company. To quell fears of delinquency, Scott-Clayton said students should be proactive in researching different repayment plans.

“You have to wonder if the lack of transparency surrounding [student] loans is intentional,” she said. “Students shouldn’t assume their loan servicer has their best interest in mind.”

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University of Southern California to pay $215 million over sex abuse scandal

That's a lot for a not very rich private school

The University of Southern California has agreed to pay $215 million to settle a federal lawsuit filed by hundreds of women who say that they were sexually abused by the former head gynecologist at the student health center and that school officials did not address their complaints.

The settlement, which still needs to be approved by the court, is among the largest to be reached by a university facing accusations of sexual misconduct. Still, it is unlikely to end the school’s legal battles over the issue. Nearly 500 women have sued USC claiming mistreatment by the gynecologist, Dr. George Tyndall.

More than 90 of his former patients came forward for the first time this week, saying that he had molested them. One woman said that when she complained, she was told by officials from the health center, “We’ll look into it.” But there was no follow-up, she said.

Thousands of women who were patients of Tyndall during his three decades at USC will be eligible for $2,500 payments, whether or not they have alleged abuse. Women who allege the worse abuse and offer additional information will be eligible for up to $20,000, while those who are willing to be screened by a psychologist could receive a maximum of $250,000.

After an internal university investigation concluded that he had acted inappropriately and that his behavior had amounted to sexually harassing patients, Tyndall reached an agreement with the school and quietly resigned with a payout in 2017.

Although the report found that complaints had come in since at least 2000 and it was not clear why he was allowed to stay, USC officials did not report the findings to the state medical board or any of his former patients.

After a major outcry over the way school officials handled the issue, the president of the university, C.L. Max Nikias, stepped down earlier this year.

The interim president, Wanda Austin, sent a letter announcing the settlement Friday to students, faculty, and staff, calling it “an important step forward” that she hopes will “help our community move collectively toward reconciliation.”

Money for the settlement will come from reserve funds and the university’s insurance, not tuition or donor money, according to details outlined on a USC website.

In court documents and in interviews, former patients of Tyndall’s have accused him of a variety of abusive practices, including invasive and unnecessary pelvic exams, touching their vaginas, asking them to undress in front of him, and making sexually explicit remarks about women’s bodies.

He has denied all allegations of harassment and mistreatment.

The state medical board suspended his license to practice in August and the Los Angeles Police Department has said it is investigating possible criminal charges.

In June, the federal Education Department said it was beginning an investigation into how USC handled the complaints, which it did not disclose during another separate federal investigation over allegations against faculty and staff members, which was concluded in January.

The settlement is the latest multimillion-dollar financial payout from a university facing accusations of sexual misconduct.

Michigan State University agreed to a $500 million settlement with hundreds of women who say they were sexually assaulted by Larry Nassar, a sports doctor who worked there for decades.

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Australia: Religious schools must retain hiring rights

In the hasty and overheated reaction to the leaked recommendations of the Ruddock review, pressure is building to remove the rights of religious schools to discriminate against teachers, not just students, on the grounds of questions of sexual orientation, gender identity or relationship status.

This pressure needs to be resisted.

Teachers and children are not the same. There is no justification for a continued right for a religious school to discriminate against a student. But there is a kind of religious school where certain aspects of a teacher’s life and relationships are significant enough to be justified grounds for discrimination.

Admittedly, some religious schools sit loosely to their religious affiliation. Other than for the chaplain, there is a low expectation for the staff to live that closely to the obligation of the relevant religion. For these schools the sexual orientation, gender identity or relationship status of their teachers is pretty irrelevant.

For others it is different. Those schools, and more importantly the parents who send their children to such schools, seek to have their students educated in an intentional religious community. And so the personal life of the teachers and other staff members play an important part in providing models and mentors for the students in growing in their religion. Such schools and parents need teachers to walk the walk — not simply talk the talk — about the religion of the school.

To remove this right to discrimination in the selection of staff, as some are rashly proposing, would be removing the right of the school to function as a religious school. Further, it would be in effect the state removing the liberty of parents to ensure the religious and moral education of their children in conformity with their own convictions, which is contrary to our international obligations under the International Covenant on Civil and Political Rights Article 18.4.

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