Citi’s securitized products analysts led by Mary Kane recently opined on student loan debt in a note to clients, calling Congressional proposals to allow student loans to be discharged in personal bankruptcies a “headline risk” to the private student loan market.
The tide of public opinion is turning against higher education as student loan debt racks up to unprecedented levels. Citi points out that the stock of outstanding student loans stands at almost $1 trillion (about $860bn in government loans to students and about $100bn in the private student loan market). This, in turn, represents about a third of all non-mortgage debt in the U.S.
The note also stresses, however, the economic benefits of going to college, and Citi thinks it’s still worth racking up the debt if students feel they can afford to pay afterward.
As you would expect, Citi’s data confirms that the more education you have (i.e. degrees), the higher your income. Unemployment rates are also lower for those with more education.
Photo: Citi Investment Research & Analysis
But no discussion of student debt by participants in said market would be complete, of course, without a little bit of finger pointing. Citi calls drop-out rates, especially at for-profit educational institutions, shocking.
And they are, according to this chart:
What’s worse is that for-profit education also incurs the highest levels of debt for students across the spectrum, as shown by this chart:
So, Citi has a few innocuous recommendations on how to fix this whole student debt problem (stop reading right now if you’re looking for making dischargeability in personal bankruptcies legal or any sort of student loan debt forgiveness plans).
The first is “aptitude counseling.” Since we know that if you have a degree, you’re going to make more than someone who doesn’t have one and you are less likely to be unemployed, which means you’re more likely to be able to service your student debt and thereby less likely to default on that debt. So, Citi thinks “it would be worth taking aptitude tests prior to undertaking a length course of study, to match abilities and interests.”
Another great idea Citi proffers relates to financial disclosure. Liken the process to taking out a mortgage. Citi asserts that “student loan lenders (including schools as lenders) ought to disclose the projected total loan amount, expected monthly payment and loan term, then comparing these figures with the average starting salaries in generic occupations.”
In short, you still need a degree, but now you just have to plan it out a little better. Full speed ahead.