Total Student Debt In America Now Exceeds The Cost Of Iraq War

We’ve all seen the headlines: the cost of university education in the United States has become completely debilitating. And student debt keeps rising to record high levels.

It’s almost commonplace now for a 22-year old to graduate from university with $50,000+ in student debt.

According to data from the Federal Reserve, the total amount of student debt in the United States is now $1.5 trillion.

As's Simon Black notes, that’s more than the estimated $1.3 trillion in direct costs that the government spent fighting the War in Iraq.

What’s probably even more bizarre is that the US government actually owns about 70% of those student loans– a total of $1.06 trillion.

I discovered this over the weekend when I was reviewing the federal government’s recently published financial statements for fiscal year 2017.

Student loans actually constitute the #1 asset of the US federal government, comprising about 30% of its balance sheet.

In other words, young people of America owe more money to the federal government than the value of every tank, every bullet, every aircraft carrier, every acre of land in the national parks.

That’s a pretty sad statement to make.

And remember that student debt in America is a very special kind of debt: it chases you around forever.

Thanks to a piece of legislation signed into law by Bill Clinton in 1998, student debt is almost impossible to ‘discharge’.

So unlike just about every other type of debt like a home mortgage or medical debt, student debt is extremely difficult to wipe away through bankruptcy procedures.

It’s more a form of indentured servitude than it is debt. There’s no escape.

To me, this really calls into question the long-term value of a university education.

Now, there’s a lot of data on this topic, and it’s all over the board.

A 2016 study in the United Kingdom by the Institute of Fiscal Studies, for example, showed that median salaries for graduates at several dozen universities were lower than non-university graduates.

On the other hand, researchers from the Federal Reserve Bank of New York have argued that university graduates will earn, on average, $1 million more over their lifetimes than people who do not graduate from university.

This is what they call the ‘wage premium’ of a university degree.

But even their own data shows that this wage premium is falling.

Another study from the UK’s Warwick University in 2012 calculated that a university graduate’s wage premium had fallen 22% in a decade.

Factoring in the steep cost (and stress) of student loans, university is not an obvious choice anymore.

More importantly, student debt can really limit a young person’s options.

When you’re staring down the barrel of $50,000 owed to the federal government, you don’t have the luxury to take a year off, travel the world, and learn a foreign language.

Or to NOT take a job and start a business.

Or to take a lower paying job where you’ll learn more.

You’re relegated to the first available option that pays down the most debt.

And that certainly has a long-term impact.

And as Mauldin Economics' Patrick Watson notes, this might be okay if the debt enhanced the student’s financial security, but for millions of Americans, that’s not what has happened.

Borrowers don’t achieve the desired results but remain stuck with the debt anyway.

An Explosion of Delinquent Student Loans

While delinquency rates for other forms of debt fell after the recession, student loans didn’t. As of year-end 2017, about 11% of nearly $1.4 trillion in student debt was at least 90 days delinquent.

It’s actually worse than that.

Roughly half of student debt is held by borrowers who aren’t required to make payments yet. That’s because they are still in school, unemployed, or otherwise excused. Much of that debt would likely be delinquent too.

Also important: The delinquent loans tend to be small (less than $10,000) and held by borrowers who never earned degrees.

These borrowers probably thought they were doing the right thing. They wanted decent jobs and saw that having a college degree was necessary to get one.

So why is college the key to gainful employment? It hasn’t always been so.

It’s because employers require a degree as a job qualification... and that’s partly the fault of IQ tests.

As SovereignMan's Simon Back concludes, it’s not to say that a university education is a waste of time and money (though an electrical engineering degree is probably a better investment than majoring in ‘18th century lesbian studies’).

The point is that going to university and racking up $50,000 in debt solely for the sake of obtaining a piece of paper is bad idea.

Any investment– especially the one you make in yourself and your education– requires careful thought and planning, you can learn more at

So how did we get here? Patrick Watson explains it all began with so-called 'unreasonable tests'...

In 1971, the US Supreme Court decided a case called Griggs vs. Duke Power Co. The subject was employment requirements.

Duke’s practice - and many other companies at the time - was to give job applicants an IQ test. Supposedly, this let them hire qualified people, but some companies also used tests to discriminate by race. The 1964 Civil Rights Act banned pre-employment tests that were not “a reasonable measure of job performance.”

The court ruled that Duke’s tests were too broad and not directly related to the jobs performed, which made them illegal.

That left a problem, though. How were employers supposed to evaluate job applicants without illegally discriminating?

Soft Skills

Employers really want to know two different things about prospective workers:

  • First, can this person perform the specific tasks that go with this job? That means operating a machine correctly, carrying boxes of a certain size and weight, writing computer code, etc. You might call these the “hard skills.”

  • Second, there are soft skills. Is this person willing to stick with unpleasant assignments to the end? Will he show up on time? Can she work with others?

Those soft skills are harder to judge but critically important. They’re also what the Supreme Court made hard to test.

College sort of requires those same soft skills. A degree may not give you much useful knowledge, but it shows you have some basic intelligence and literacy. It also shows you will jump through hoops if your organization tells you to. Employers value those qualities.

The Griggs case said nothing about educational requirements. Employers remained free to require high school diplomas or college degrees… and the ruling gave them a big incentive to.

College degrees are convenient, legal substitutes for the kind of testing employers haven’t been able to use since the 1970s. So apart from whatever you learn in college, merely having the credential became necessary to career success.

As a result, everyone in the equation made certain choices.

  • Employers: demand a college degree even for jobs that don’t require college-level skills.

  • Workers: get a college degree even if you must take on debt.

  • Colleges: Raise prices since so many students are begging for degrees.

This made college more expensive, forcing students to borrow more and more money.

Politicians jumped in to promote and guarantee those loans. And here we are. 

College Monopoly

In the Griggs case, the US Supreme Court effectively granted colleges a monopoly. They can discriminate based on a long series of tests that lead to a degree. Employers can’t.

Like most monopolies, this one is inefficient. It creates unpayable debt that burdens students. Some of it eventually falls on taxpayers. Not ideal.

Methods exist to evaluate prospective workers without requiring college degrees, and without racial or other illegal discrimination. But there’s no incentive to try them when you can just screen out the non-college graduates and accomplish the same thing.

Resolving this impasse would help our debt problem and probably our employment problem as well. But the losers would be colleges and educational lenders, so don’t expect them to cooperate, unless someone forces them to.

*  *  *

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.


ThinkerNotEmoter Consuelo Wed, 02/28/2018 - 17:13 Permalink

Make the student loan business free-market based and these problems will go away.

No lender is going to lend $200K for a seven year four year degree in advanced womyns studies.  They won't be paid back.  $50K for an engineering degree.  Sure.

Get the government OUT of the student loan business.  They are simply pushing "free" money (that has to be paid back... HA! suckers...) on people for shit they can't use, to pay off teachers unions.

In reply to by Consuelo

KimAsa Manthong Wed, 02/28/2018 - 18:30 Permalink



Interesting.  The top three German automotive dealerships where I live (Pacific Northwest), for example, can’t find qualified mechanics to fill myriad tech positions that start at $50K a year with earnings potential as high as $125K/y after five years, AND they send you to school to certify you in EV, diesel mechanics and electronics, and more, at no charge, PLUS THEY PAY YOUR WAGES AND YOUR EXPENSES.  

Do they teach diesel auto-mechanics at University of Washington? Or is that too much white toxic masculinity for the progressive elite over there at UW. 

And yet these “progressive” liberal snowflakes are willing to go into generational (read: life-long) five-figure debt for worthless degrees in cross-gender confusion, curved penises, with a minor focus on Trump derangement syndrome.

Two of the most absolutely worthless and stupid debt endeavors:  the illegal MENA wars and the inept federal student loan program.  Thanks for nothing Obama.  Scratch that.  Thanks for the unending, untenable debt you strapped the country’s children, grandchildren and great-grand children to, so you and your friends can secure their vote as they stay forever dependent on food stamps and other secure-the-vote progressive entitlements.  




In reply to by Manthong

LetThemEatRand Stackers Wed, 02/28/2018 - 17:28 Permalink

Either way, it is pretty amazing to think that all of the debt could have been replaced with the money the US spent on the insanely stupid war in Iraq.  While I am not in any way, shape or form in favor of giving students free money to attend colleges that are already massively overpriced, it is a sad fact that our country would rather spend money on a useless war than educating their population.  And worse still, the anti-socialist Red Team always thinks there is plenty of money to wage war.  Because spending tax dollars on the MIC is somehow not socialism, I guess.

In reply to by Stackers

itstippy LetThemEatRand Wed, 02/28/2018 - 17:47 Permalink

The Iraq War was going to pay for itself, through lurative rebuilding contracts paid for via Iraqi oil.  That's what they told us.  And any country who didn't join the "Coallition Of The Willing" would be excluded from the future lucrative rebuilding contracts.  I recall this clearly.  That was the Bush Administration.

Later, I was told that the Affordable Care Act wouldn't raise the deficit one dime, and that people who already had health insurance would see their premiums drop by $2,500 per year because of all the new enrollies in the health insurance pool.  That was the Obama Administratiobn.

Now I'm told we're going to build a big Southern Wall, that Mexico is going to pay for it, and it's going to Make America Great Again.  That's the Trump Administration.

I'm starting to lose confidence in the ability of our government to accurately assess budgetary matters.

In reply to by LetThemEatRand

MEFOBILLS LetThemEatRand Wed, 02/28/2018 - 18:32 Permalink

It's simple, if a generation is in debt, they are paying down that debt rather than buying goods and services.

If you are a producer of goods and service, then the ideal is that you have customers.

If you don't have customers, you cannot produce.  You don't produce, you don't eat.

In the course of paying down debt, in a debt money system, former bank credit disappears.


In reply to by LetThemEatRand

MK ULTRA Alpha MEFOBILLS Wed, 02/28/2018 - 22:12 Permalink

One thing missing in the article, the federal government makes money from the student loan program. I've read articles going behind the scenes explaining it, not many know, the federal government is making money from subjugating young kids in to debt bondage for life.

The federal government must be abolished and the nation divided up so we can be FREE. We are not free and the federal government and their agencies doesn't work for the majority of the people.

And political representation is limited and doesn't solve our problems, but the federal system does abuse us, lies to us and robs us, no matter which party is in control, it's the same thing. It must and will be destroyed for the good of our people.

In reply to by MEFOBILLS

mayhem_korner LetThemEatRand Wed, 02/28/2018 - 19:31 Permalink

Student loans actually constitute the #1 asset of the US federal government, comprising about 30% of its balance sheetIn other words, young people of America owe more money to the federal government than the value of every tank, every bullet, every aircraft carrier, every acre of land in the national parks.

Let's just clean up this little hyperbole.  Author is mixing federal reserve balance sheet with federal government balance sheet.

In reply to by LetThemEatRand

hongdo PrivetHedge Wed, 02/28/2018 - 17:45 Permalink

"because you have to pay back the loan"

Surely you jest.  And I did call you Surely.

But seriously, 2 points.  First the toll of the Obama presidency is just now becoming clear.  The loans did not default on his watch and someone was setup to take the fall later.  However the financial benefits of the spending did occur on his watch.

Second, what can't be paid back will not be paid back - either with or without interest.  You can hound people until they die, but eventually they do die.

You underestimate the flexibility of those who make the rules at their whim and the power of the educational system (with pills where necessary)  to create obedience.

In reply to by PrivetHedge

Kayman hongdo Wed, 02/28/2018 - 18:19 Permalink

"Financial benefits from student loans?"

Don't you mean taxpayer funds diverted into the leftist voting hands by the Democratic Party?

Get rid of all higher education subsidies and see how fast the cost of higher education falls to affordable levels and how quickly you don't  need student debt.

With the internet 1 good professor should be able to teach thousands at one lecture.

In reply to by hongdo

hongdo Kayman Thu, 03/01/2018 - 19:14 Permalink

You are correct.  By financial benefits I meant the student loan funds spent in the general economy on rent, food, etc.  The money is all spent.  Education costs have gone up due to building and admin staff increases and salaries and because the government seemingly provided unlimited funds.  I'll bet classes are still taught by poor graduate students while over-paid tenured professors are busy begging for grants to study things no one cares about.

In reply to by Kayman

The Ram Consuelo Wed, 02/28/2018 - 17:49 Permalink

1971 - Especially closing the gold window in August of 1971 and printing lots of fiat for the next 5+ decades!  Of course, in August of 1971, I was in Jr. High School riding my bicycle around with my friends, blissfully unaware of the magnitude of change that would take place decades later as the fiat currency of the federal reserve started to falter.

In reply to by Consuelo

Kayman The Ram Wed, 02/28/2018 - 18:24 Permalink

No country would ever be able to keep their gold when it is/was directly convertible into physical gold. Those days are in the rear view mirror.

Big Mac, Large Fries and a large Coke, and change back from $1 in 1970. And the lying government is still telling us that they can't get inflation past 2%.  

In reply to by The Ram

Kayman Rick Cerone Wed, 02/28/2018 - 18:29 Permalink

Speaking of dickheads, Ricky, it has taken nearly a generation to destroy the U.S. economy -by giving all of our manufacturing base to foreigners, mainly China, for free. That is the number one reason we have such debt and effectively no tax base.

Trump has taken on a huge job, and only a dickhead, like you, thinks all of it is going to change on a fucking dime. Cheer him on and stop fucking whining.

In reply to by Rick Cerone