Student loan debt in America reached a staggering $1.31 trillion as of Dec. 31, 2016, according to new data from the Federal Reserve Bank of New York.
The report showed that just in the last quarter of 2016, outstanding student loans balances increased by $31 billion.
This is not surprising with the constant climbing costs of college. Today, a college education is the second largest expense an individual is likely to make in their lifetime, behind buying a house.
In fact, the average cost of a single credit at a four year public university is $594.46, according to a Student Loan Hero study.
Dr. Dennis Edwards, chair of Finance and Economics at Coastal Carolina University, explained that if steps are not taken to combat student loan debt, there could be serious financial repercussions.
“This is an alarming statistic and one that shows little sign of slowing down if measures are not taken soon,” said Edwards. “There are a few people out there who think student loans might be the next bubble to burst, akin to the mortgage bubble of 2008.”
Those few people could be correct. According to the data, student loan debt accounts for 10 percent of debt balance, only second to mortgage which makes up 67 percent of the national debt pool.
Unfortunately, to echo Edwards, the rates show no sign of slowing down. The website MarketWatch has actively been tracking student loan debt since 2006 and currently, the debt is increasing at a rate of $2667.2 per second.
Not only is debt climbing at an alarming rate, the data shows that students are also falling behind on paying back their loans. In the fourth quarter of 2016, 11.2 percent of all student loan debt was 90 or more days delinquent or in default, surpassing credit card loans at 7.1 percent and auto loans at 3.8 percent.
Edwards said that this is partly due to the fact that students are not making enough money.
“Someone becoming delinquent might depend on his or her individual circumstance but if students have taken on more than they can handle, making basic payments becomes increasingly difficult if they’ve secured employment that does not pay very much in relation to the debt they have taken on,” said Edwards.
He added that this statistic is one that should be watched.
“This is the statistic that will give us an indication of a bubble about to burst,” said Edwards. “One or two people defaulting here and there will not make much of a difference. It’s when people default en masse that gives the markets pessimism.”
Falling delinquent on student loan payments can have an adverse effect on one’s credit, hindering future opportunities like attending graduate school or purchasing a house.
Jamiah Aguabella, a recent graduate of Coastal, said that he will be paying off his loans for a decade.
“I will be paying them back for 10 years,” said Aguabella. “It’s absolutely ridiculous that we have to pay thousands to universities to get a degree or else jobs won’t accept our resume. Student loans has kept me back from much more than graduate school. Starting out in a 10 year committed relationship with debt is not how I want to live my 20’s.”
With accumulating debt being an inevitable fate for most college students, the question arises of what can be done to reduce it. The most simple answer is to choose a cheaper school but for those who are already enrolled at a university, this is not very helpful.
And in reality, when students are deciding on what school to attend, cost is not number one of the list of concerns. It is actually third behind academic program and personal choice, according to Sallie Mae.
Another way to avoid a large amount of debt, Edwards explained, is to make sure to pick a realistic career path.
“The biggest mistake a person can make is to take on a tremendous amount of debt and pursue a career with an income that doesn’t do enough to satisfy his or her debt obligations,” said Edwards. “I’m the last person to say an individual should not chase their dream. However, it’s up to the student to do a net present value analysis on potential future earnings compared to the total cost—principal plus interest—of obtaining an education in that field. If the cost outweighs the future earning potential, it isn’t a viable career path, provided that is the person’s sole income stream.”
As for reducing debt while still in college, the key is to be frugal. Making responsible choices now could positively affect one’s financial state for the rest of their lives.
“Life is about choices,” said Edwards. “Some of those choices require sacrifice. Do you need the best clothes? Do you need a new 2017 model car? Do you need to eat out every night? Do you really need to spend $50 at the bars every weekend? Taking an honest account of expenditures and seeing where you can cut back will help. It won’t answer all your debt problems, but every little bit can help, especially when you’re young.”