Holiday Eggnog Debates: Student Loans in the US

Everything you need to know to destroy your drunk uncle.

Family holiday parties and student loans are very similar.

Your parents talked you into it, booze is almost always involved, and you will not be happy again until either is finished.

A classic occurrence at these fiestas is the inevitable old person vs. young person debate on some topic that clearly no one in attendance has researched in any way.

Aside from the student loan debate (the point of this whole shebang), you are likely to stumble across presidential policy debates, housing booms debates, and possibly a quick lecture on the "illegals" or China.

I hate to assume anything, but I will.

I assume that you are likely taking the stance that student loans are a problem, that the millennial generation has been exploited to a far greater extent than prior generations, that "forgiveness" is unlikely, and that public policy should eliminate the current system.

Uncle Drunk will likely take the stance that millennials have it way better than they did, that you should stop blaming the government for your choices, and Biden is going to forgive everyone's student debt anyway so you shouldn't try to pay it off early.

Let's work through the debate.

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YOU: "Student loans are a problem"

DRUNK UNCLE: "Millennials/You are just disillusioned and it was actually worse before"

Argument:

Currently, $1.64 trillion in student debt is outstanding in the United States spread across 45 million borrowers. The average debt per student is $32,731.

The current default/90-day delinquency rate is 10.8% (per Forbes). Put in hard numbers, that's about $160 billion of debt not being paid.

Of those that could potentially qualify for Public Service Loan Forgiveness (1.2M borrowers):

136,000 applied for the forgiveness

1,561 actually obtained forgiveness (this is just about 1%).

In case you didn't catch that - ONLY 1 PERCENT OF PEOPLE WHO COULD HAVE QUALIFIED FOR PUBLIC SERVICE LOAN FORGIVENESS WERE APPROVED.

I emphasize this point specifically as it is the only legitimate channel for forgiveness currently available.

No, Biden will not forgive your loans folks.

Borrowers age 25-34 and age 35-49 carry $500 billion and $575 billion in student debt, respectively.

The wild part about these figures is the 35-49 age group has had almost 2 decades to pay off the debt borrowed.

The inflation-adjusted cost of attending a university has also tripled since the 90's.

National Center of Education Stats shows the average annual total cost (including tuition, room, board, etc) of attending a public university in the late 90's was $6,256 and is now $18,000.

So these folks had to borrow less and still couldn't pay it off.

Lastly, rates on PLUS loans have fluctuated from 4% to 9% from 1990 to 2020.

This trend is also evident across other federal loan types.

No clear interest rate advantage/disadvantage is evident for either collective.

So millennials have to pay 3 times the cost the Gen Xers, resulting in higher debt balances, cannot count on financial support from their heavily indebted Xer parents, and have about a 0% chance of having Public Service Forgiveness requests being approved.

Millennials are not disillusioned and Xers have statistically proven to be worse at paying off their own debt despite the fact that it was far less.