It was the number that made headlines at the beginning of 2016: the total student loan debt in the U.S., according to data from the U.S. Department of Education. MarketWatch created a student loan debt clock that an estimated $2,000 additional are added every second.
Controversy over student loan debt is not a new one. There are some who say the student loan bubble could burst like the 2008 housing crisis, but there are others who say the student loan debt is not as big a problem as some make it.
In 2013, the U.S. Department of Education’s Office of Federal Student Aid reported the national student loan default rate at 14.7 percent.
Since 2013, however, the default rate has been in a steady decline, coming down to 11.3 percent as of 2016. The figures at USF for 2012-16, as reported in the 2016 University Work Plan, were estimated to be 5.2 percent. Financial Aid Director Billie Jo Hamilton said that the official rate for 2016 is 5.3 percent.
Hamilton said approximately 70 percent of undergraduate students at USF are receiving some type of financial aid, most of which is in the form of student loans. The USF Work Plan for 2016 says that 60 percent of bachelor’s recipients graduate with debt.
“Every student who fills out the FAFSA qualifies for a student loan,” she said. “(However), not every student who fills out the FAFSA qualifies for a grant.”
USF Financial Aid processed $417 million in total aid for 2015-16, including grants, scholarships, loans, federal work study and other forms of aid from the university.
The national average for debt per borrower at a public university, according to federal statistics, is $26,872. The average amount of debt of a student who earned a bachelor’s in 2014-15 was $22,899.
Hamilton analogized student loan debt to auto loan debt.
“It’s not the price of a car,” Hamilton said.
Student loans and auto loans have different interest rates on average, but Hamilton said the investment is what is important when it comes to getting a student loan. She said the average additional earnings over a lifetime for those who get their bachelor’s degree is estimated at $1 million.
Hamilton said she feels that an investment in higher education is a vastly more important one.
“Reasonable, responsible borrowing that gets you to graduation is the best investment you’ll ever make for yourself,” she said.
USF currently offers debt counseling services and peer financial advising. Students can get help with budgeting and loan management. The financial aid fee students pay helps pay for these programs, so Hamilton encourages students to take advantage of them.
USF also does exit counseling where graduates are provided with personalized assessments of their student loan debt and taught how to manage payments.
The Association of Public Land-Grant Universities (APLU) created a fact sheet as part of its Public University Values campaign that compiles statistics and research about student debt.
Using data gathered from the U.S. Department of Education, the APLU reported that while students graduate with debt, the majority graduate with less than $30,000.
“About 36 percent of students at four-year public universities finished their bachelor’s degree without any debt and 79 percent graduated with less than $30,000 in debt,” the APLU said in its report.
“Only 6 percent of public university graduates left with more than $50,000. And those with over $100,000 in debt are rarer still: they are anomalies representing less than half of 1 percent of all four-year public university undergraduates completing their degrees.”
Hamilton said those who graduate with hundreds of thousands of dollars in debt are outliers. However, she said those who default on loans more often than not are those with small amounts of student loan debt.
“The majority of the students who default on their student loans owe small amounts — $5,000 or less — and they did not finish getting their credential,” she said. “So they dropped out … life happened and they couldn’t finish.”
Hamilton feels USF’s average student debt ($22,899) is a manageable amount, but also said what amount of debt constitutes as manageable is major-dependent.
“I think manageable probably depends on the student’s perspective and the income,” she said. “What might be manageable for an engineering or a business major when they get out might be more challenging for a teacher, so it’s almost discipline-specific.
“What they kind of recommend is that … you shouldn’t have a student loan payment that’s more than 10 percent of your salary.”
She stressed the federal payment plans offered for students who need to pay off their debt. One program is Pay As You Earn (PAYE), where student loan payments increase as the graduate’s income increases.
A White House report titled “Investing in Higher Education: Benefits, Challenges, and the State of Student Debt” from July 2016 concluded that the value of an education was still high but debt did create problems for students.
“College remains an excellent investment overall, and the majority of dollars in the student loan market continue to fund investments with large returns to student borrowers and the economy,” the report said.
“However, there is variation in college quality, and particularly during the recession, many students did not receive an education that allowed them to manage the debt they incurred. At the same time, many prospective students have been dissuaded from enrolling in college because of factors like poor information, high complexity, and credit constraints.”
For student who want to avoid accumulating large amounts of debt, Hamilton recommends sticking to a plan to graduate in four years instead of six, not taking unnecessary classes and avoiding dropping or failing courses. She encourages students to contact the servicer on their loans and to look at the options available to them to pay their debt. She said financial literacy is also important.
“Once you’ve borrowed, it’s kind of too late to fix the problem,” she said.
Hamilton said the way student loan debt is portrayed in the media may make students afraid to borrow money. The $1.3 trillion figure, she said, is logical because more students than ever have gone to college.
“I worry that all this negative talk about borrowing and student debt taken out of context might make families and students reluctant to make that investment,” she said. “You know, on occasion we’ll have a student come in that’s struggling. They’re getting grants maybe and they’re trying to not borrow money and so they’re working maybe too much.
“Whereas, if they just borrowed a small amount of loan money … a semester or whatever so that they didn’t have to work as much, that might take the pressure off and actually help them move through quicker.”
However, the student loan debt clock keeps ticking and for some, that fear will remain.