Will debt-but-no-degree shatter the American dream?
The most talked about statistic in the student loan story is the average student debt of $30,000. But that may not be the statistic that requires the most attention. Aggregate student debt in the United States (IJH) (VTV) has certainly ballooned. It has reached a level that has caught the attention of regulators as well as policymakers. However, if you delve into the origin of the student loan concern, you’ll see why a small-ticket loan of $5,000 could be more harmful to the health of the US economy (SPY) (IWM) (QQQ) than a $100,000 loan.
The smaller the ticket size, the bigger the risk
There’s a one-line answer to the small-ticket issue. Small-ticket loans are mainly held by students who are dropouts or never enrolled in college. Defaults on these financial sector (XLF) (VFH) loans are almost inevitable.
Statistics support this. Loans of $10,000 account for about two-thirds of all student loan defaults. Students with $5,000 in debt are among the ones that never enrolled in college. How does anyone expect this segment of borrowers to repay their debts?
While the media are busy focusing on the larger scheme of things, the heart of the student debt crisis seems to be in smaller loans.
Let’s move on to see who might see the effects of the student debt crisis more.