The Best Christmas Gift for a Graduate? How About a Student Loan Payment

Wondering what to get the millennial in your life this holiday season? Simple. Pay one of their monthly student loan payments. They’ll love you for it.

No, seriously. In a survey conducted by Student Loan Report, 69.3 percent of borrowers would rather receive a student loan payment instead of a gift this holiday season. And 58 percent of those surveyed said they intended to use any Christmas money to pay down their student loan debt.

While writing a check to a money lender certainly feels more Scrooge than Santa, many young adults could use the help. All told, 44.2 million Americans have student loan debt totaling around $1.4 trillion with delinquency rates that are high and rising.

“Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”

Although the risk of default may be “borne” by the Treasury (i.e. taxpayers), that doesn’t mean that indebted graduates aren’t feeling the pinch.

The problem begins with soaring college costs. In 1988, the average tuition at a public nonprofit four-year college was $3,190. Today that figure, after adjusting for inflation, is $9,970 – an increase of more than 200 percent. Even that figure dramatically understates the increase given that the ancillary costs of higher education—housing, meals, books, etc.—have increased much faster than inflation.

But ever-higher costs have had little impact on demand. If anything, the pressure to go to college to “guarantee” a good job, coupled with a relative lack of investment in alternatives such as trade schools or apprenticeships, has pushed families to find a way to make it work, whatever the financial consequences.

As Matt Taibbi writes for Rolling Stone, the federal government has only thrown fuel on the fire by offering up a bottomless pit of credit:

Parents, not wanting their kids to fall behind, will pay every dollar they have. But if they don’t have the cash, there is a virtually unlimited amount of credit available to young people. Proposed cuts to Pell Grants aside, the landscape is filled with public and private lending, and students gobble it up. …

The average amount of debt for a student leaving school is skyrocketing even faster than the rate of tuition increase. In 2016, for instance, the average amount of debt for an exiting college graduate was a staggering $37,172. That’s a rise of six percent over just the previous year. With the average undergraduate interest rate at about 3.7 percent, the interest alone costs around $115 per month, meaning anyone who can’t afford to pay into the principal faces the prospect of $69,000 in payments over 50 years.

Four year colleges, and especially graduate schools, have caught onto the system. Knowing that students are receiving easy credit and thus freed from the market forces that would put downward pressure on prices, administrators feel empowered to raise tuition. It would be one thing if colleges were investing this in ways that would promote positive educational outcomes, but too much of it is instead being used to fuel an amenities arms race. Countless millions are being spent on fancy gyms, upgraded dorms, and gourmet cafeterias, which receive hearty support from the increasing ranks of administrators.

All the while, colleges are socking hundreds of millions of dollars away in “reserve funds,” that sit separate from their hefty alumni-fueled endowments. The Washington Post reported last year:

Public universities, accustomed to much tighter state funding than they enjoyed a generation or two ago, are racing to build endowments. But those funds typically carry significant donor restrictions. As a result, many public universities have hit on another strategy to keep pace with the elite of higher education: They amass financial reserves to ride out the fiscal ups and downs inherent in the public sector and generate as much revenue as possible for high-priority projects.

In other words, at the same time as many college presidents were lamenting the state budget cuts that naturally flowed from the recession and dramatically hiking tuitions in return, they were hoarding cash with no real explanation as to how or why.

Higher tuition prices. Higher loan debts. Higher delinquency rates. And for what…bigger college financial reserves?