As recently reported by the NY Post, a study of government data by the Consumer Federation of America found that the number of Americans in default on their student loans jumped by nearly a fifth last year.  According to the analysis, student loans in default, meaning that they haven’t made a payment in more than 270 days, jumped from 3.6 million to 4.2 million by the end of 2016.

The 4.2 million loans in default are roughly 10% of the number of student loans in the market.  Furthermore, Americans currently owe about $1.3 trillion in federal student loans.  Including private loans, the amount of debt grows to $1.4 trillion.  Shockingly, student loan debt has grown from just about $0.5 trillion in 2006 to $1.4 trillion in 2016.

As the article points out, “Defaulting on a federal student loan can be a financial disaster for the borrower. Unlike other types of debts, most federal student loans cannot be discharged in bankruptcy. Those who go into default face serious repercussions including wage garnishment, damaged credit scores and potentially added costs in fees, interest,  and legal fees.”

The significant increase in the cost of education and the greater use of student loans to meet this expense is placing an unfair burden on our younger generation.  This burden makes it nearly impossible for one to begin to fund a defined contribution retirement plan, but that is basically what we are left with at this stage.  The more it delays funding the less likely it is that one will generate a retirement account meaningful enough to accomplish one’s goal of retiring.

At KCS, we focus on issues related to one’s ability to retire, but the burden of greater educational costs impacts so much more from establishing family units, housing, and the general demand for goods and services.  It isn’t shocking to us that the US economy hasn’t generated a >3% GDP growth since 2005 when one looks at the significant growth in student loan debt since 2006.