Student Debt Is on an Upward Track for the Record-Breaking Class of 2016

Editors' pick: Originally published May 20.

The Class of 2016 is leaving campus with chart-topping student debt.

Even optimistic estimates flirt with $30,000. The Oakland, Calif.-based TICAS (The Institute for College Access and Success) puts average debt at graduation at $28,930 for the Class of 2014, where seven in ten seniors had loans. The number produced by Mark Kantrowitz, publisher and vice president of strategy at Chicago-based Cappex.com, was $37,172 for 2016, up from $35,051 for the previous year.

Kantrowitz acknowledged that these results could be eye-popping. "People pay attention to milestones," he said. "When outstanding student loan debt exceeded credit card debt for the first time, then auto loans and then exceeded $1 trillion, it caught the attention of the public and policymakers. It clearly demonstrated that student loan debt was a potentially macroeconomic factor, albeit a weak one."

He stated that total student loan payments per year was about 0.4% of the Gross Domestic Product (GDP). The total outstanding loan balances--over $1.3 trillion, roughly 9% of the $19 trillion U.S. GDP, is a more sensational figure. In 2015, U.S. student loan balances surpassed the combined GDPs of Australia, Ireland and New Zealand.

"It was inevitable that student loans would eventually exceed credit card debt," Kantrowitz said. "Credit cards are repaid over months to years, while student loans are repaid over decades." He also noted that each year, there is a fresh crop of new college students borrowing to pay for school. "New debt exceeds the progress in repaying old debt." It is, he said, similar to taking two steps forward, one step back.

Kantrowitz stated that the impact on individual borrowers, which is more difficult to quantify, may also be more important. "How many students are borrowing excessively?" he said. "Is this a matter of choice or of necessity?"

Or are big balances simply the result of bad decisions, often made by people ill-suited to run the higher ed gamut to a degree? Kantrowitz defined excessive debt as when a borrower graduates with more debt than can be paid off in a reasonable amount of time, such as within ten years of graduation. A similar benchmark is when over 10% of the borrower's gross income goes to repaying the student loan, assuming a ten-year repayment term.

An even more serious problem than students who take on too much debt are students who do not graduate. "Their average debt may be lower, since they weren't in school as long," said Kantrowitz, "but they are more likely to default because they have the debt but not the degree." Students who quit without their degree are four times more likely to default and represent nearly two-thirds of all student loan defaults.

The flipside of the student debt coin is its unquantified capacity to discourage people from going to college. "Another problem is students who don't go to college at all, because of the cost and the debt," said Kantrowitz. "We are increasingly pricing low-income students out of a college education. It is also causing a decline in Bachelor's degree attainment among low-income students."

Some light at the end of this tunnel is provided by an improving economy.

"On average, student loan debt at graduation is less than annual starting salaries," Kantrowitz said, noting that the National Association of Colleges and Employers puts the average starting salary for college grads at $50,000. Graduating into a bad job market can be devastating. The Great Recession affected the Class of 2008 for years, not months; they are a cohort likely to continue to feel the impact of lost income from that period.

The New York Federal reserve put the median salary of recent college grads at $43,000 in 2015 based on government figures, an increase of $39,993 over 2015. As of December, the New York Fed said that the unemployment rate for recent college graduates was 4.6%. The New York Fed defines "recent college graduates" as having a BA and being between ages 22 and 27.

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