A recent report published in collegedebt.com has the current student debt in the U.S. standing at $1.4 trillion. According to a new analysis published by Moody’s, student debt obligations are growing much faster than credit card debt or auto loans and the average salaries for recent graduates are not keeping up. The average student debt in the United States has increased to about $29,000–a 60% jump from about $18,000 in 2007 and doubling the amount since 2009, according to the Department of Education.
Student loans now needs an estimated $160 billion in annual payments in order to cover its liability, $40 billion greater than Amazon’s annual revenue and larger than the combined yearly sales of Home Depot and Lowe’s.
Statistics indicate that about one in five borrowers owe more than $50,000 in student loans, and 5.6% owe more than $100,000. Reasons for this staggering figure include switching majors, transferring to a college that won’t accept credits, or stopping and restarting school. In addition, many students don’t take their loans seriously enough and use the student loans to live way beyond their means.
The most common reason for six-figure student loan debt is students pursuing graduate, doctoral, or other professional degrees. The average student graduating from dental school has racked up $241,097 in debt, according to the American Student Dental Association while the average debt for a law school grad is $125,000 according to the American Bar Association.
The Good and the Bad
The ballooning student loan debt can be seen from both positive and negative viewpoints. With more out of pocket money going to pay off their loans, Americans between ages 30 and 39 who have historically been the biggest spenders, have fewer funds to expend on other items, leaving tremendous inventories in major store chains. This change in spending patterns has been blamed for sluggish retail sales in the U.S. and globally.
Moody’s believes that the situation will only get worse for retailers, even with potential government intervention to help solve the problem. According to the rating agency, the “velocity of growth tied to student loan debt is ‘staggering,’ having more than doubled from $580 million in 2008.”
Some analysts see the other side of the coin and believe that a decrease in the amount of consumer spending money will benefit lower-end retailers such as Wal-Mart and Target and off-price players including TJX and Ross, and dollar stores.
One analyst at Moody’s suggests that investors should view the current scenario in terms of being a recession and recessions “don’t last forever.” In fact, according to the Commerce Department, retail sales were up 2.8 percent through July.
Companies Stepping in to Help
Some major companies are stepping in to assist their employees to pay off their student debt. Aetna launched a matching payment program in January to help employees repay student loans. The Hartford Connecticut insurance company said it will match U.S. employees’ student-loan payments up to $2,000 per year, with a lifetime maximum of up to $10,000.
Fidelity followed suit in March and announced that full-time employees at the manager level or below would be eligible to receive $2,000 a year paid toward their student loan balance, for a total of up to $10,000.
And just last month, Amazon announced that it was teaming up with Wells Fargo to offer a 0.5% student loan interest rate discount to members of its Student Prime program — a discounted version of the popular membership available to students.
With more and more companies jumping on the bandwagon, student debt could start to drop. With college tuition costs continuing to rise each year, however, the situation may not be solved any time soon.