What may not shock you is that the US student loan debt has skyrocketed to about $1.3 trillion. What may shock you is that student loan debt is the second highest debt category only falling behind mortgage loans, and holding a sum larger than credit card and auto loan debt individually. So what does this mean? It means that it holds the potential to be the reasoning behind the next financial crisis.

According to Washington College President and former Deposit Insurance Corporation Chair, Shelia Bair, “during the financial crisis of 2008–09, excessive mortgage debt collapsed consumer spending as more families opted to pay off debt. The same dynamic could be seen if the student debt bubble bursts”. To put this into further perspective, more than 44 million Americans have taken out loans in order to fund their college careers, and in 2016 the default rate hit an all-time high as 8 million stopped paying loans summing up to about $137 million. For Americans, 60 percent of these borrowers have no hope to pay off their student debt until their 40’s. The average student in 2016 had $37,172 in student loan debt, and the following report from Forbes details some more crucial stats:

Student Loan Statistics: Overview (As of 4Q 2016, New York Federal Reserve)

· Total Student Loan Debt: $1.31 trillion

· Total U.S. Borrowers with Student Loan Debt: 44.2 million

· Student Loan Delinquency or Default Rate: 11.2%

· Total Increase in Student Loan Debt In 4Q2016: $31 billion

· New Delinquent Balances (30+ days): $32.6 billion

· New Delinquent Balances – Seriously Delinquent (90+ days): $31 billion

Other than this 2016 data, 1.1 million Americans defaulted for the first time last year as well, and the total amount of student loan defaults grew by about 14% in the previous year. For first-generation college students, 90% of them do not graduate on time as they are multitasking with jobs in order to pay off their debt, working 20 plus hours a week on top of school. According to CNBC, not only is all of this taking a financial impact on students, but it has a mental grasp too, as 80 percent the working class with student loan debt report it is the reason of “significant” or “very significant” stress, as highlighted in a survey of more than 3,000 Americans. Just how long does it take the typical American to repay all of their debt? According to a study from Wisconsin University as reported by CNBC, it takes 23 years for Wisconsin grads to pay off a graduate degree, and 10 years for the average American repaying federal student loans.

So what do US degree-seekers do? Well for one, an evaluation of non-American repayment systems may shed some light. While the typical repayment period for US college students is only ten years, university goers in Sweden typically see a 25-year repayment plan with a gradual increase in payments throughout the years. In Germany, that plan reaches 20 years, and in England, it’s 30. Even though the income inequality is much greater in Australia, the debt is not expected to be paid off until graduates reach a steady income level of around $40K. But in the US, repayment plans can be found with a 12-page application, and when the need arises to revise the plan due to a shift in income, the paperwork needs to be completed again, and can take months for approval while payments are still arriving in the mail demanding to be paid. According to Forbes, “There are over seven million Americans in default on their

student loans already…over 20 million more Americans have little or no hope of ever paying down their loans…many will suffer irreconcilable damage to their credit scores, impacting their ability to get a mortgage, buy a car or get a job.” Yet these student loan bills keep arriving in the mail no matter what a person’s income bracket is.

So, the potential for a financial crisis is in the works perhaps. These large defaults are going to hit the US government’s financial balance sheet hard as the loans are mainly provided by the tax payers. In the meantime, millennials are not spending, proving the lack of confidence they have in the economy. Fox says, “Student loan debt is thwarting the creation of small businesses and affecting job growth as college graduates opt for safe corporate jobs to pay back the loans.”

Perhaps this is a conversation that needs more and more press, otherwise, college students of the now and later will pay the price in a sense that is quite literal.

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