American households see increasingly heavier debt burden

By Zhang Mengxu, People's Daily

The aggregate household debt balances in the U.S. increased to a record high of $13.95 trillion, or 73 percent of the country’s GDP, in the third quarter of 2019, said a recent report released by the Federal Reserve Bank of New York.

Mortgage balances accounted for 2/3 of the total household debt balances, followed by student loans that took 11 percent of the share. Besides, auto loans and credit card balances also stood at a high level.

Each household in the U.S. carrying at least one form of debt owed an average of $144,100, said a report issued by America’s Debt Help Organization.

“With new car prices in May of 2019 were over $37,000, an affordable auto loan now comes with a five- or six-year repayment schedule. Credit card interest rates also continue rising as balances edge up. In the last decade, non-mortgage consumer debt has increased to $4 trillion, a record even when adjusted for inflation,” the report said.

Housing prices and higher education costs are rising far faster than most people’s incomes, forcing them to either take on larger debts, the report said. They are borrowing more on their credit cards, taking on soaring levels of student debt and signing more and more personal loans, all making the next recession even riskier for those already struggling to make payments, it added.

Stephanie from Illinois is a social worker who owns a student loan of $151,000 for college education, mostly of which is all interest because of her payment plan. To pay the loan, she has left nothing untried.

“I have a family and I fear I will never pay this back,” she said.

The story of Stephanie is not a rare example. According to a report by Washington Post, 45 million Americans have student loans totaling $1.6 trillion, more than twice of those in 2009.

New York Times said in an article that 2/3 of college students in the U.S. took on debt last year, and the average burden for indebted college graduates is now nearly $30,000. Millions of borrowers continued to struggle to pay their student loans, as a quarter of federal direct loan borrowers were either delinquent or in default at the end of 2018, the report introduced.

Another New York Times report said that the U.S. Congress created a student loan forgiveness program in 2007, but fewer than 1 percent of those who have applied for relief under the Public Service Loan Forgiveness program have been deemed eligible.

The vast majority of denials happened because people did not enroll in a loan or repayment plan that qualified, even if their chosen professions did, and most were not told of the error until the rejection notice’s arrival, the report explained.

The report said that the forgiveness program was messy and filled with complicated requirements that borrowers and lenders have struggled to understand, and the Education Department has made no effort to improve what is within its control.

Unlike most other forms of debt, student loans aren’t dischargeable through bankruptcy, which means borrowers are obligated to make payments even if they don’t have the income, said the Debt Help Organization report. People default for a variety of reasons, but job loss or failure to land a position that pays enough to make loan payments are common problems.

“Student debt is a multi-generational problem as parents and even grandparents sign loans to help the student. If the student can’t pay, the debt becomes a family problem,” the report said.

New Yorker magazine said in a September article that from the late nineteen-eighties to the present, college tuition has increased at a rate four times that of inflation, and eight times that of household income, and some fear that the student-debt “bubble” will be the next to burst.

Middle-class families might not seem like the most sympathetic characters, the New Yorker article noted. Citing a late 1980s study, the article explained that the Americans filing for bankruptcy rarely lacked education or spent recklessly. Rather, they were often college-educated couples who were unable to recover from random crises along the way, like emergency medical bills.

The article commented that in the eighties, more than half of American twentysomethings were financially independent. However, in the past decade, nearly seventy percent of young adults in their twenties have received money from their parents. “The risk is collective, and the consequences are shared across generations,” it said.

According to a report by Isabel Sawhill and Christopher Pulliam from the Brookings Institution, the richest top 1 percent of American households held over 29 percent of the country’s collective wealth in 2016, and the top 20 percent held 77 percent of total household wealth. However, the bottom 20 percent of the households only accounted for 2 percent of America’s collective wealth.

“The United States is a rich country, but it is becoming one in which a very small number of citizens own most of the wealth, and from which both younger Americans and the broad middle class are failing to benefit,” the report remarked.