Non-housing debt balance as of Q2 2017 is at an all time high; a large component of this growth is attributed to student loans. The balance is at a whopping $1.34 trillion, doubling the amount from Q4 2008 of $0.64 trillion.
Naturally, I start to wonder why student loans doubled in the last 9 years. According to New York Fed, student loans include loans to finance educational expenses provided by banks, credit unions and other financial institutions as well as federal and state governments. Readers should bear in mind that the figure previously mentioned above is limited to non-housing debt component of the total household debt. Hence, I make a simple assumption that this balance represents payables owed by students to various institutions for education expense.
My hypothesis is that either: (1) there are more students receiving education, or (2) the composition of students has shifted from those that are self funding to those that require financing.
While our first hypothesis may contribute to the increase, it does not give me confidence that it would attribute at the magnitude we quoted previously. If the population of the student body didn’t advance much, the change may be attributed to the composition of students. Let’s take a look.
Earlier this year, the American Association of Collegiate Registrars and Admissions Officers released a survey of 250 colleges and universities. The survey showed that 39% of institutions reported a decline in international applications, with the highest declines from the Middle East. Further, institutions also reported that applications from India and China, which made up 47% of international student enrollment in 2016 with nearly half a million students studying in the U.S., have been impacted.
The survey also revealed that the most frequently noted concerns of international students and their families pertained to their ability to obtain a visa, perception of foreigner unfriendly climate in the U.S., and uncertainty surrounding employment opportunities post graduation.
It appears that international students are shying away from the U.S. under Trump administration but this still does not explain growth of student loan by two orders of magnitude.
While conducting my research, I stumbled upon interesting information. According to Donald Heller, dean of the College of Education at Michigan State University, the economic downturn of 2008 forced states to cut funding for institutions, which forced them to increase tuition to cover operational costs. Makes sense. Data compiled by Heller also suggests that private and public college tuition has increased by about 200 percent and 300 percent, respectively, with the biggest jump happening since 2008. This did not deter students from enrolling in colleges due to higher employment prospects post graduation.
Many of us can agree that higher education is too expensive for the mass in the U.S. Setting politics aside, I hope someone will come up with a plan to make this work for everyone.