One in five American households now owes money on student loans -- more than double the percentage of households and nearly triple the average amount of college debt of two decades ago.
That's causing a ripple effect across the economy, stalling new car purchases and home ownership for young middle-class households that face longer-term debt, paying off their student loans, according to two separate reports released this week.
Since 2007, the number of Americans carrying student debt has increased in nearly every demographic and economic category, as has the size of that debt, a Pew Research Center analysis of newly available government data shows.
Student loan debt in Wisconsin has slashed new-car purchasing and made owning a home less likely for young middle-class households, found a separate survey by the liberal special interest group, Institute for One Wisconsin in Madison.
"The trillion-dollar student loan debt is not just a crisis for students," said Scot Ross, the Wisconsin organization's executive director. "It is literally standing between college graduates and their share of the American dream and a more robust economic recovery both nationally and, as shown by our research, in Wisconsin."
Those in the Wisconsin survey with bachelor's degrees reported making an average monthly student loan payment of $350, while those with graduate or professional degrees paid an average $448 monthly.
Those without a monthly student loan payment bought new and used vehicles at about the same frequency. But the likelihood of buying a new vehicle, rather than a used vehicle, was influenced by student loan payments. Fifty-two percent of those in the Wisconsin survey who had never had a student loan were likely to buy a new vehicle, rather than a used vehicle, compared with 32.8% who were paying a student loan.
The length of student loan debt was nearly 19 years for persons with bachelor's degrees and over 22 years for those with graduate or professional degrees in the Wisconsin survey.
Tiffany Koehler, who has a four-year college degree, doesn't expect to pay off her student debt for 30 years.
She said she'd love to buy a fuel-efficient car to replace the 2000 Ford Explorer passed down from her godfather.
But the 42-year-old Greenfield woman said she is living paycheck to paycheck, working full-time as a director for a non-profit, and paying off a combined $52,000 student loan debt from her bachelor's degree in political science at Cardinal Stritch University, plus one year of seminary.
Her monthly student loan payments total $475, more than a typical new car payment.
"I have been self-sufficient, never in legal trouble, I walk the straight-and-narrow and cannot even grasp at the American Dream of owning property. My retirement in 30 years looks like a used trailer in the desert of Arizona," Koehler said. "The American dream is changing for a lot of us."
The Wisconsin survey also suggested a link between renting and student loan debt, decreasing as income exceeds $150,000. Eighty-five percent of renters with a household income of $50,000 to $75,000 in the survey were currently paying on a student loan.
The survey found an increasing reliance on private student loans vs. government loans, and more young adults consolidating loans, which the institute attributed to the 1996 Student Loan Marketing Association Reorganization Act. That act spun off the formerly government-sponsored Sallie Mae corporation as a private company.
Eric Euting, a graduate of Milwaukee School of Engineering, knows the pain of private student loan debt.
In addition to $15,000 in Stafford subsidized loans, he took out $65,000 in private loans, which he consolidated before the economy tanked. But he chose a fixed rate of 8.25% and can't get a break, he said.
Euting has been paying $422 per month just to cover interest on the private loan -- so far, over $20,000 in interest alone, he said. "And I haven't even touched my principal." Add the $90 per month Stafford loan payment, and his monthly student loan payment is $512.
He makes about 33% less a year than what he owes in private loans, Euting said.
The analysis by the nonprofit Pew Research Center found that about one out of five (19%) of the nation's households owed money on student loans in 2010.
That's more than double the share two decades earlier and a significant rise from the 15% who had student loan debt just prior to the onset of the Great Recession in 2007.
The relative burden of student loan debt, whether computed as a share of household income or assets, is greatest for households in the bottom fifth of the income spectrum, even though residents of such households are less likely than those in other groups to attend college in the first place, according to the analysis. In 2010, the least affluent fifth of households owed 13% of the outstanding student debt, up from 11% in 2007.
"As a society, we need to worry more about the people who fail to graduate or get the credential," said J. Michael Collins, a professor of consumer science and faculty director for the Center for Financial Security at the University of Wisconsin-Madison. "They'll never get the bump in pay or be able to pay back their obligation."
No one is suggesting the return on college is forever going to be lower, Collins said. "Once they're in the labor market, it gets better. They just face a longer-term gap before a degree pays off."
It's complicated, Collins said. In the mid 2000s, if a student was offered a loan, his or her parents had enough home equity that they could get a better loan rate than the student. Not any more. Private student loan terms are quite expensive, he said.
"We're seeing higher student debt ratios to depressed incomes and decreased spending on all kinds of things."
Willingness to take on high debt is part of the problem, said Chris Cholka, 26, of Waukesha, who has paid off about half of his $20,000 loan debt and has increased his payments to eliminate the debt quicker.
"Everyone thinks it is OK to live with debt; it is not," Cholka said. We need to teach young Americans to live within or below your means, pay off credit cards in full every month and not ask the government to bail you out of student loan and credit card debt."
Cholka said he thinks career-specific degrees also are more likely to lead to jobs than liberal arts degrees. "Everyone that I know that has a career-specific degree is able to find jobs and pay off their debt. I, for one, am an accountant and my wife is a nurse."
The data analyzed by Pew came from the Survey of Consumer Finances sponsored by the Federal Reserve Board of Governors and the Department of the Treasury.
The Wisconsin survey was not a random sampling. Individuals on the group's mailing list were asked to respond to an online questionnaire, so the nearly 2,700 respondents were self-selected. Of those who responded, more than a third of those with bachelors or advanced degrees were making student loan payments. The survey and analysis were done by an outside research firm, Corvus Insights of Madison.
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