Student Loan Bubble Will Be The Next "Financial Stability Issue"Submitted by Peace Gold Love on Fri, 08/10/2012 - 09:19
Please mark your calendars accordingly as yesterday the Chairman just guaranteed that student loans will be cause for the next "financial stability issue."
Here are the facts, courtesy of a just released expose on the WSJ:
- Rising college costs and a sagging economy are taking the biggest toll on a surprising group: upper-middle-income families.
- According to a Wall Street Journal analysis of recently released Federal Reserve data, households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010, the latest figures available. That group also saw a sharp climb in the amount of debt owed on average.
- Ms. Hofmeister, an insurance broker and financial planner, says she and her husband, an operations manager, combined earn a six-figure income that puts them in the upper-middle class and were surprised by the amount they will have to borrow. She says she feels trapped in financial purgatory, between "people with lower incomes who have a lot of subsidy, and the truly affluent, for whom this isn't a problem."
- The Journal's analysis defined upper-middle-income households as those with annual incomes between the 80th and 95th percentiles of all households nationwide. Among this group, 25.6% had student-loan debt in 2010, up from 19.5% in 2007. For all households, the portion with student loan debt rose to 19.1% in 2010 from 15.2% in 2007.
- The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflation, according to the Journal's analysis.
- The typical low-income family receives grants and scholarships totaling 36% of the cost, the lender says, while for higher-income families such packages total 21%.
- More than three million households now owe at least $50,000 in student loans, up from about 794,000 in 2001 and fewer than 300,000 in 1989, after adjusting for inflation.
- Some families are turning to loans because they spent heavily or used extra cash to save for retirement. More than one-third of parents with incomes of $95,000 to $125,000 with a child who entered college in 2011 didn't save or invest for that child's education, according to a survey by education consultants Human Capital Research.
- With their finances strained, some higher-earning parents are making their children pick up more of the tab. Among families earning $100,000 or more, students paid 23% of their college costs in 2012 through loans, income and savings, according to Sallie Mae, up from 14% in 2009; the share covered by parents fell to 52% from 61%.
And last but not least, those ever-altruistic baby boomers: