A nation’s millstone
It’s not just national debt; household debt is huge
Americans have reached a $12.7 trillion milestone. Or maybe that should be millstone. It’s a record, anyway, for household debt, as measured by the Federal Reserve Bank of New York using Equifax data.
The previous record came in 2008, when the financial system collapsed.
Dividing $12.7 trillion by the U.S. population gives just under $40,000. According to USDebtClock.org, the federal government owes $61,268 per citizen. So by a very rough estimate, the average American, his family and his government have dug him into a hole more than $100,000 deep.
If that’s insufficiently depressing, a rising share of household debt — it’s now 11 percent — is student loans. Those loans, sometimes branded as “good debt” (perhaps by college administrators who could not get jobs if the federal studentloan program hadn’t made it easy to raise tuition), have unusual characteristics. Since federal student loans aren’t based on income, students can borrow more than they can afford. And since they are very difficult to get rid of in bankruptcy, those who do that are stuck with their debts.
And while federal student loans have income-driven repayment options, some say the companies that service the loans don’t do enough to put borrowers on those plans.
So perhaps it is unsurprising that, according to the New York Fed, student loans go into serious delinquency more frequently than credit cards, mortgages or car loans.
Debt weighs people down. A dollar that must pay for past spending is a dollar that’s not available for current spending, or to save for the future. And while the ability to borrow can make starting a business easier, existing debts can make it harder. They must be paid even when one is working on a business that isn’t yet providing a livable income.
Yet federal policy has long encouraged borrowing. Federal student loans are the driving force of student debt. And there are tax deductions for interest on both student loans and home mortgages.
It’s time to question that approach. We should do more than find better ways for graduates to manage their student debt. We need to have less debt — of all kinds.