25 Alarming facts about student loan debt.

There is a debt problem in this country that’s grown to epidemic proportions with no end in sight.  No, we’re not referring to the national deficit, the loss of mortgage equity from the real estate bust, or even rampant credit card debt.  The most pressing debt problem may come from student loans, believe it or not.

The numbers are staggering, and when laid out in sequence, tell a sobering story of the changing face of a new type of poverty, where young people are well educated, yet shackled by the proposition of facing decades of paying off inescapable student loans.

We’ve all heard the horror stories – kids are graduating college addled with tens of thousands of dollars of debt, only to face an uphill battle when it comes to getting a job that’s not at Starbucks or for more than retail workers wages.   In fact, 1/3 of college graduates end up taking jobs that don’t even require a degree.  Those low-wage jobs don’t even offer a living wage for things like an apartment and a car, yet alone catch up with student loan payments once their deferment is up. 

Dr. Andrew Jennings, FICO’s chief analytics officer, said recently that the student loan debt situation is "simply unsustainable."

So to fully expose the problem, we did a little digging, combing through reports and studies by the Fair Isaac Corp., the Chicago Tribune, CNNMoney, Newsweek, The Institute for College Access and Success (TICAS), the Wall Street Journal, TransUnion, and Forbes magazine.

Here are 25 facts about student loan debt that tell the true story:

Student loan debt has hit the $1.2 trillion mark.

$1 trillion of that is federal student loan debt.

With the federal debt at $16.7 trillion, student loan debts measure at 6% of the overall national debt.

Student loan debt tops all other forms of consumer debt in America.

Student loan debt is the second highest form of consumer debt behind mortgages. 

It's the only kind that is next to impossible to discharge in bankruptcy

The majority of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education. 

Based on that fact, the creditor is the U.S. taxpayer because they will be burdened and obligated by the loan if the student defaults. 

The average student debt load ballooned 58 percent from 2005 to 2012 -- from $17,233 to $27,253.  A report by CNN just released puts the number even higher - at over $29,000.

The number of consumers with two or more open student loans on their credit report grew from 12 million in 2005 to 26 million in 2012.

Of the student loan debt originated between 2005 and 2007, an industry boom period, 12.4 percent are 90 days past due, according to FICO.

Additionally, 15.1 percent of loans issued between 2010 and 2012 are 90 days past due.

1/3 of all outstanding student loans as of March 2012 are held by the riskiest borrowers, an increase from 31 percent in 2007.

More than half of student loan accounts - 65.5 million of 128.8 million - are in deferment.

2/3 of students graduating from American colleges and universities are graduating with some level of debt. 

Students completing an associate’s degree from a community college in 2008, 38% graduated with debt. 

In the for-profit sector of two-year degrees, over 90% have debt. 

The average debt load at a public two-year institution is $7,000.

One in 10 graduates accumulate more than $40,000.

60% of students borrow money annually to cover costs.

That’s approximately 12,000.000 students a year.

There are about 37,000,000 borrowers with outstanding student loan debt.

Since 1978, the cost of the average college tuition has gone up 900%.  The cost of living went up approximately 325% in that same period. 

$20,360,000,000 is the reported profit generated from student loan debt each year.  That’s over 20 TRILLION dollars EACH year!

The Department of Education made $101.8 billion from student loans over the last 5 years.

The topic of our mandatory minimum wage brings maximum debate.

The New Year has brought movement in a long-time financial barometer in the United States – the mandatory minimum wage.  As of January 1, 2014, legislation took hold in 13 states and the District of Colombia, raising the minimum wage for those citizens anywhere from $7.50 in Missouri to $9.32 in Washington.  But there’s even more debate on a Federal level about raising the Fed mandatory minimum wage to $10.10 an hour, up from it’s current plateau at $7.25, where it’s sat since 2009.  Congressional Democrats and President Obama are backing the measure but it’s finding no support among the Republican-led House. 

Even though a Fed mandatory number exists, states can have their own minimum wage standards, as long as they don’t fall below the Fed level.  Right now 19 states plus District of Columbia have their own higher minimum wage legislation, and even cities and counties have the option of raising it.  The highest in the country is San Francisco at $10.74.  Washington leads the way for states with a $9.32 minimum wage, followed by Oregon at $9.10.  Vermont is at $8.73, Connecticut, $8.70, and New Jersey pays at least $8.25.  More states are expected to enact wage standard legislation.

We first saw statutory minimum wage regulations in New Zealand in 1894 and the Australian colony (not yet a state) of Victoria in 1896.  Attempts to effect wage uniformity had been present since trade unions were decriminalized during the 19^th century, but this was the first time actual laws or binding agreements were on the books.  Now, such measures exist in 90% of all countries around the world, ostensibly to stop sweatshop labor and exploitation of workers.

In the United States, the Federal Mandatory Minimum Wage was created in 1938.  It rose regularly and significantly until 1968, a high point of $1.60 an hour (that is $8.56 in inflation-adjusted 2012 dollars.)  But since then it has lagged behind the cost of living and inflation. 

In fact, after adjustments for inflation, the Federal Minimum Wage dropped 20% from 1967 to 2010.  In that time it has climbed from $1.40 to $7.25 an hour in real numbers, a 418% gain.  But even since the increase in 2009 it’s lost about 5.8% of its purchasing power, a huge chunk for workers and families already existing on a minimum wage income. 

The push to increase the Fed Minimum Wage comes from two groups that are unlikely allies – low wage workers, themselves, and economists.  Recently, fast food workers, rallying for a $15 an hour “living wage,” organized in about 100 cities for protests.  Similarly, WalMart workers have called attention to their inadequate wages and demanded fair wages.  While employment numbers dangle and dance, the problem of low wages was exacerbated by the recession.  As our economy started to rebound, about 60% of the new jobs created during the recovery were low-wage positions, according to a 2012 study by the National Employment Law Project.  They went on to report that a combination of unemployment and these low wages increased the national poverty rate by 3.4% during the recession, and that has not abated. 

A subsequent study by the University of Massachusetts-Amherst economist Arindrajit Dube found that an increase of the Fed mandatory minimum wage to $10.10, as proposed by some lawmakers, would lift nearly 6.8 million Americans out of poverty in the long term, or 4.6 million directly.   Other economists predict that nearly 21.3 million U.S. workers, a whopping 16.4% of the workforce, would be affected by raising the Federal minimum wage to $10.10 by July 2015.

17.8% of all wage and salary workers – about 23.2 million Americans - worked in the nation’s lowest paid jobs last year.  Of those, 4.3 million were retail salespeople 3.3. million cashiers, 2.9 million food preparers/servers (including fast-food workers) and 2.3 million waiters or waitresses.  The age split is interesting – dooming the young.  50.6% of the U.S. workers at or below the minimum wage last year were 16-24 and 20.3% were 25-34. 

This feeds the perception that minimum wage jobs are usually held by teenagers or college kids at fast food joints, where a low salary is not as much of an issue.  However, we see that’s not the case - 85.5% of those workers, according to the EPI report, are 20 or older, and therefore have full financial obligations – households to support and families to feed.  57.3% are female; and 39.4% are black or Hispanic, compared to 26.8% of the workforce as a whole.

The debate rages on whether raising the minimum wage legitimately pulls people out of poverty or hurts business and decentivizes people from seeking better careers, with the outcome of new legislation impacting millions of Americans.

***

So what do you think about the Federal minimum wage?  Should it be raised to $10.10?  Or is it best left up to states to set?  Does it encourage people to seek low-level jobs and hurt business?  Or is it our social responsibility to pay a living wage? 

Is a person's credit score a major factor when dating?

He’s over 5’5” tall, holds the door, is photogenic, has good hair, and doesn’t call you “Dude,” while high-fiving you - everything you always wanted in a man.  She’s pretty without caking on the makeup, is way smarter than you, laughs at your bad jokes, and lies to you that she likes sports – your dream girl.  The first date goes wonderfully, the conversation effortless, and before you know it you’re the last two customers at Applebee's splitting a double fudge alamode brownie.  Date number two and especially number three (wink!) are even better, and you’re certain you found the love of your life and marriage bells are in the not-so-distant future.  What could possibly go wrong?

There comes a time in every relationship where you have to sit down and have THE talk.  It’s a moment people dread.  No, I’m not talking about the talk about monogamy or that you have 11 cats or a restraining order against your crazy ex, I mean the talk about your credit score.  Wait – what?  Did you say, “credit score?”

Yup, according to a recent survey, that’s a big hot button issue for relationships these days.  FreeCreditScore.com (which isn’t free, by the way) polled 1,000 adults and came up with these shocking results:

While 57% of men say that credit scores play into their dating decisions, a staggering 75% of women said they consider the numerical rating.

Those are huge numbers!  Still, that just means they’ll “consider” your credit score, but what if the number is in the dumps? 


About 30% of women and 20% of men say they won't marry a person with a low credit score.

People who took the poll also said that money management skills are just as important as looks when deciding whether someone is worth pursuing.  Women ranked financial responsibility and financial compatibility above or the same as career ambition, physical attraction and sex and intimacy.

Male pollsters thought that financial savvy was just as important as physical attraction, slightly less important than sex and intimacy and much more important than career ambition.

Hmmm…my first question is where the heck did they find these 1,000 people that think a credit score is more important than physical attraction?!  But, on second thought, they were asking about credit score and marrying someone.  It’s a valid concern, with implications that spread far beyond a person’s FICO.  

There are many factors that would cause a person’s credit score to dip, especially through the recession, like a job loss, medical issue, or bad loan on a home, but for the most part a bad credit score may signal financial irresponsibility or being overburdened with debt.  That’s a red flag when you’re dating someone and thinking about taking the next step.  When you get married the other person’s debt and financial responsibilities often become your burden, and no one wants to set themselves up in a terrible financial situation.  After all, it is “For better or for worse.”

About 50% of survey participants said they’ve talked about credit score with their significant other, while 39% do so during the first year of the relationship.  21% broach the subject before even committing to a relationship and 19% compare scores before living together.  Only 1% discuss their credit scores on the first date.  (Hi, I’m Bob, I enjoy long walks on the beach, puppy dogs, and have a 685 midrange FICO.)  

And why not?  When we’re dating in someone and interested, don’t we “pull their file” by asking about them with our mutual friends?  Comb through their Facebook page?  Google their name?  Get a blood test?  It’s not even unheard of to do a background check to see if they have a criminal record, especially for single parents who just want to be careful. 

In fact, even Suze Orman, Mrs. Financial Guru herself, suggested on a recent appearance on the Oprah show that, “Before you get involved in a relationship or anything, FICO first, then sex.”

Ok Suze, maybe that’s taking it a little too far, but the point is noted.  Even the younger generation is cautious, as there’s growing concern over getting involved long term with someone who’s addled with student loan or credit card debt in their 20’s, setting the potential-couple back decades when it comes to buying a house or saving for a family.

As I researched this topic I also asked for feedback from our Blue Water Credit fans and friends.  Here were some responses to the question, “Would credit score be a factor in who you dated or married?”

“If they have learned from their mistake I don't care about their bank account or credit score. I draw the line at fraud and crime.”

“It would depend on the person and circumstances. Some folk get a bad rating based on stuff totally out of their control.”

“Date?  No.  Marry? Absolutely!”

Even a well-respected bankruptcy attorney in Sacramento, Gary F. Zilaff, offered some great insight, “One of the common requests I get from potential legal clients who wish retain my office to file a bankruptcy is because their fiancé or fiancée will not marry them without clearing off their bad credit! Many times it is the fiancée who calls me!”

So we now know that simultaneously while you’re sharing that double fudge brownie together at Applebees and staring longingly into they’re…eyes…remember to ask how they sit with Equifax, Transunion, and Experian.  But are we taking it a little too far?

There’s now a dating site that matches potential love interests based on…their credit score.  I’m not making this up.  Unlike other dating sites for singles, CreditScoreDating.com attempts to pair people based on their FICO first and then their interests and profile photo.  Here is the enticing copy right off their site:“Welcome To CreditScoreDating where good credit scores are sexy. The future of dating is here now. We use the member input credit scores in our matching process to help you find your perfect match.  Join now for a free upgraded Silver membership. Romance plus good credit scores equals dating and romantic success.

800-850 is "MARRIAGE POTENTIAL DING DING DING"750-800 is "take him/her home to Mom"700-750 is a "fixer-upper"650-700 is "fun for a night out, maybe, but bring cash"600-650 is "keep lookin'!"anything below 500 is "RUN because they won't even get a car loan, probably, and how embarrassing will that be at the PTA meetings?”

So far the site has gotten a ton of media coverage as a novelty, but not many actual participants.  I'm guessing that's because in the real world - where people have job losses, income problems, resetting loans, credit card's playing with their interest rates, divorces, etc., snafus with credit score happen.  So unless you're planning to be in a relationship with Suzy Orman, don't feel bad about it - just come to us and we'll help you rebuild your score so you'll be datable and desirable once again.  

:-)

Sacramento is king of real estate appreciation once again.

The gaudy numbers look familiar – giving long time Sacramento residents a case of real estate deja vu; home prices have risen by 26% compared to the same time last year.  Those are the kind of white-hot appreciation numbers the region enjoyed during the boom, from 2003-2007, as Sacramento was one of the fastest appreciating markets in the country.  Now, after so much has happened with the real estate boom and bottoming of the market, it claims the top spot again.  According to a survey by the well-respected and conservative CoreLogic Case-Shiller Index, Sacramento’s year over appreciation numbers are the highest of all 380 markets in the country.

Las Vegas trailed Sacramento at #2, with 25% appreciation; Oakland was #3 with 24%, and San Jose and Los Angeles also in the top 5.  Those appreciation numbers dwarfed the nationwide average of 10% during the same period. 

We certainly look at those numbers and glean that the market, formerly one of the most distressed in the nation with a rash of foreclosures, short sales, and defaults following the mortgage crisis, has found its equilibrium.  But if the past teaches us anything, it’s that white-hot appreciation isn’t always healthy in the long run, either.  But analysts expect the region to see a gradual cooling over the next year to numbers more in line with the national average.  Since last November, inventory is up 71%, median asking prices are up 21%.  Investors have taken a step back from the over-saturated rental market as prices rise and REO’s and distressed sales are harder to come by, and new homes are being built at a faster clip. 

That all adds up for a leveling of the appreciation rate to normalized, healthy levels, but for now, Sacramento still wears the crown for #1 in the nation.