Student debt is the fastest growing type of non-mortgage debt

Stephen Lamb [00:00:00] Hello. I’m Steve Lamb, and this is By The Numbers. Today, we’re talking about student loan debt for nearly two years since the onset of COVID. Most student loan payments have been suspended, and the Biden administration recently extended that further providing interest free forbearance to borrowers until May. 

Devin McGinley [00:00:20] The payment freeze addressed what was a crisis in waiting before COVID hit. At a total of one point seventy five trillion dollars, roughly the size of the Canadian economy, student debt is the largest and fastest growing type of non-mortgage debt in the United States. Over the 10 years before 2020, the average student loan balance grew 152 percent, more than $39000, according to the Education Data Initiative. That’s more than twice the growth of wages over the same period 

Stephen Lamb [00:00:47] as our colleague Emile Hallez reported before the most recent payment freeze, many borrowers had been worried about their ability to resume payments. In fact, 89 percent of full time workers with outstanding student loans were worried about their financial security when payments were set to resume in February, according to a survey by the Student Debt Crisis Center, an advocacy organization for student borrowers. 

Devin McGinley [00:01:10] And it’s not clear that three more months of temporary relief will change much, according to that same survey. Twenty one percent of borrowers never thought that they would be financially secure enough to afford repayment of their loans. 

Stephen Lamb [00:01:22] Over the past two years, only about one in five borrowers continued to make their regular payments, according to a survey by Bankrate. For some, the forbearance period was an opportunity to pay down higher interest debt, and for others, the money went to basic needs like rent and groceries. 

Devin McGinley [00:01:38] Savings for emergency funds and retirement will be the hardest hit by the resumption of payments, according to the Bank Rate Survey. Forty three percent of borrowers will cut these savings when payments eventually do resume. Financial advisers know how much cuts to these savings will add up when compounded over the course of a career, according to investment news research. Eighty five percent of financial advisory firms offer education planning for their clients, and with low interest rates in the topic in the news, now could be a good time to help young clients refinance loans and to drive home the importance of planning ahead for clients with children. 

Stephen Lamb [00:02:14] Indeed, although more and more employees are addressing loan debt through new benefits alongside traditional 401ks, there’s no magic solution to student debt on the horizon. It may be up to the financial planning profession to keep the student debt crisis from turning into the next generation’s retirement crisis. Thanks for watching. We’ll be back in February to look at investing trends by the numbers.