Thursday, October 9, 2014

Student Loans for the Wealthy Outpace Growth in Other Categories ... Surprised?

When we think of the problems associated with student loans, we tend to think that it's a middle and lower economic class problem. Well, it's not. It's universal.

Of course, our economy will suffer as more of us are indebted and unable to buy that first car, first home or take that first vacation upon entering adulthood. And lest we forget, many of our parents are saddled with the cost of sending the kids to and through college as well.

To get a handle on how rapidly the problem is growing and just how big it really is, Student loans soar among wealthy college graduates has the surprising answers:  
Student debt: These graduates might not be feeling so happy when the bills start rolling in. More wealthy families are taking out education loans.
The wealthier you are, the more likely your child will have a student loan.

A record share of the nation’s new college graduates (69%) had taken out student loans to finance their education, and the typical amount they borrowed was more than double that of college graduates 20 years ago, according to a new analysis of government data — “The Changing Profile of Student Borrowers” — by the non-profit Pew Research Center. “The increase in the rate of borrowing over the past two decades has been much greater among graduates from more affluent families than among those from low-income families,” the report found.
The increase in borrowing was substantial among graduates from households earning between $83,407 and $125,772 per year: 62% of those graduates left college in 2012 with debt versus just 34% roughly 20 years ago. Around half of graduates in 2012 from households earning above $125,772 left college with student loans versus 24% in 1993. The percentage of those with loans was higher for graduates from lower income families, but the increases were far smaller: 77% of lower income graduates earning below $44,431 per year had student debt in 2012 versus 67% two decades ago.

Also see: College graduates face high hurdles to buying first homes

Why the spike for graduates from affluent families? “The Great Recession was indiscriminate in destroying wealth,” says Richard Fry, senior economist at Pew Research Center. “Wealthier people have had to borrow to pay for their tuition bills.” There was a time before 2007 when home owners — who tend to have greater wealth than renters — could take home equity lines of credit and borrow on their homes, he adds. “Many affluent families could tap the equity in their homes,” Fry says. “The banks got much tighter with home equity lines of credit and that avenue of finance wasn’t as available.”

Policy changes have also expanded eligibility for federal loan programs and, as a result, broadened the pool of all potential borrowers."

Summing Up

When I first read this, I was surprised.

But upon reflection, it makes sense.

Houses have come down in price, home equity loans have risen substantially, and home owners are "under water."

Homes are our biggest "asset" and all home owners have considerably less "equity" than before the housing debacle several years ago.

So now as a nation we have added a huge layer of additional debt --- on top of mortgages, home equity loans, auto loans, credit cards and so forth --- in the form of student loans.

And it's a biggie and getting bigger all the time!

It's no wonder our economy is struggling to regain momentum --- our debt is too high and our government spending, including colleges, is too high as well.

When will all this fiscal insanity, deficit spending and debt accumulation change and take a turn for the better?

Soon, let's hope.

That's my take.

Thanks. Bob.

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