Student Loans

Stressful debt can interfere with regular work

The number of students with college debt rises every year. And so do their balances…

Total federal student loan debt totaled about $1.4 trillion in 2019. Private student loans were much lower, estimated to be about $125 billion. Private loans amount for under 8% of the total college loans. So, as the holder of about 92% of all student debt, the Federal government is the major player in the student debt market.

The Federal Reserve collects statistics on student loan payment size. The data from 2018 reported a typical monthly payment of between $200 and $299 per month. These monthly payments are against a typical outstanding balance between $20,000 and $24,999. The average balances are higher for those who pursue professional degrees:

Students who pursue professional degree programs can expect to take on much more. Here’s how the average student loan debt compares for the class of 2018.

Average debt for medical school graduates: $196,520.

Average debt for dental school graduates: $285,184.

Average debt for pharmacy school graduates: $166,528.

Half of borrowers have relatively small debt burdens at $17,000. This is approximately half the size of a new car loan. It is at least on the order of a car loan, compared to that of a mortgage. With discipline and a systematic plan, this debt can be repaid relatively quickly, probably in under four years—three years or less if the borrower is really motivated.

But despite the fact that the typical student loan balance and payments are on the order of new-car loans—the average balance of which is $31,099 with payments of $515–the delinquency rates on student loans are higher than on auto loans. The New York Fed reports that the student loan delinquency rate, meaning borrowers who have not made a payment in 90 days or more, was 11.1%, compared to about 5% of auto loans.


So, default is an increasingly likely risk for students who borrow money to pay for their schooling. The government considers any borrower who misses a single payment to be delinquent. After being delinquent for 90 days, the loan servicer sends a report to the three major national credit bureaus, and they ding the borrower’s credit score.

Federal direct loans, which amounted to $1.25 trillion in the first quarter of 2020, go into default after 9 months, or 270 days, of non-payment. When a loan goes into default, it is accelerated and the entire balance becomes due immediately. The borrower loses eligibility to negotiate a better repayment plan. Their credit rating will tank even further, and the IRS will likely begin garnishing wages and withholding tax refunds.

In short, things become nightmarish for borrowers who default on their student loans.

Despite the catastrophic consequences of doing so, defaulting on student loans is a growing problem. A CNBC article, citing an economic study by the Brookings Institute, reported in August of 2018 that about a million people default on their loans each year. This represents about 25% of all college entrants, and the number is projected to grow to 40% of all college entrants defaulting on their student loans by 2023. A whopping 25% default within four years of leaving school. And it’s the people with the least amount of debt (less than $5,000) that are more likely to default than those with higher levels of debt ($35,000 or more). This is probably because they drop out. 

The article authors blame their default on the fact that they have less income available to them because they don’t have a degree—they dropped out, after all. The “experts” tend to correlate debt repayment probability with higher income, but that’s because they never examine the personal ethics and behavior of the individuals who default. They never attempt to assess the time perspective of the defaulters —are they short-term thinkers or long-term thinkers— and link their defaulting to long-term patterns of behavior.

Because it is incredibly hard to discharge federal student loans—they are practically immune to bankruptcy claims—the act of defaulting, rather than lessening your financial burden, increases it.

The CNBC article reports that the loan balance will increase about 10% as collection fees and interest accumulate. Another, more informative article tells just how bad things really can be for the person who defaults. The article gives an example of a student defaulting on a $30,000 loan. Federal regulations require borrowers to pay “reasonable collection costs” on top of late fees and interest. So, because of how the collections costs are rolled into the loans, a borrower who defaults on a $30,000 loan will be penalized an additional $13,176 in collection charges and another $7,936 in interest payments. At $300 a month, this increases their payoff time from 12 years to 18 years.

But student loan defaults tend to hit blacks hardest. The Brookings study revealed that the chance of defaulting on student loans is much greater for blacks than it is for whites. Just four percent of white students default within 12 years, but a high 67 percent of blacks face this fate.


What can the diaconate do respond to this life-crushing problem?

One thing is to make a flat recommendation to all parents with children in the congregation: never, ever fill out a FAFSA, for starters. If you don’t apply for federal financial aid, then you can never be ensnared by it. “The rich rules over the poor, and the borrower is the slave of the lender” (Prov. 22:7). Parents should not willingly put their children in the crosshairs of the government-banking alliance that most benefits from siphoning the financial wealth from young people during their prime working years. 

Sending debt payments to the government (or anybody) for 15 years or more means the borrower cannot save that money and build up their savings. It is money they cannot put towards a long-term inheritance fund for their children. Parents should teach their children about these consequences long before they reach the age of matriculation.

The diaconate should also recommend that parents require their children to get part-time jobs, save their own money, and pay their own way.

Students who spent hundreds of hours during the summers working and earning money, unlike their friends who wasted away their days by the pool, will have a greater appreciation for their time when they start college. They are less likely to fritter away their time if they know just what kind of effort was required to fund the experience in the first place.

There are direct consequences between their labor, their money, and their effort. Severing the link between authority, responsibility, and money is one of the greatest mistakes a parent can make in the life of a child. The modern education model, which has been modern since about 1200 AD, is corrupt. The parents pay for their students’ college education, either out of their own pocket or through loans, but their kids are not under their parents’ authority. The parents surrender their authority to their children but continue to pay their bills. The parents hand over the money and pray their children don’t flunk out—which over 40% do— while the kids call all the shots.

The person paying the bills should call the shots. There is an old saying that encapsulates this wisdom: He who pays the piper calls the tune.

One reason for the perceived need for loans is the exorbitant cost of college. The average cost of tuition and fees for full-time students in 2019 was about $10,500 a year for a public four-year, in-state university, with another $11,500 in room-and-board on top of that. Altogether, that comes out to be about $22,000 a year, or about $88,000 for a basic degree (if they finish in 4 years, though many students don’t). Tack on another $4,500 for miscellaneous student expenses each year.

That’s $26,000 per year if done the traditional, retail way.

But there are definitely cheaper ways to get a degree. A college degree can be obtained for less than $15,000, if you know how to do it. CLEP courses allow hard-working high-school-age students to pass a test and gain college credit before they even set foot on campus. At $89 per exam (in 2020), this is a much cheaper way to gain a large portion of your college credit. You can search for a college on CollegeBoard’s website and see which CLEP exams they will give credit for (hint: most do).

Unless a person wants to go into engineering, nursing, or become a doctor or some other specialized professional, there is little reason to pay a fraction of the $80,000 that a typical liberal arts degree will cost.

Even then, engineering students can CLEP out of their humanities requirements and completely skip Bible courses offered by liberal professors that may sound appealing, but which will ultimately just undermine their Christian faith.

Diaconates ought to teach their members about the pitfalls of student loan debt early on in an attempt to persuade parents to avoid the traditional college route altogether.