The Student Loan Problem (Or Is It?)

There has been a serious decline in unemployment for this cohort over the past five years, to levels consistent with much of the 1990s and some of the 2000s. Plus, for our purposes, these figures represent a worst case, since we must consider only those with postsecondary education to incur student debt. With that in mind, let’s take a look at the longer-term employment results of that education.

Clearly, younger people are doing better, and in aggregate, the more educated are doing better yet, suggesting that growing employment should help ensure student debt repayments.

A burden for many, but not a systemic risk

Overall, the spike in student loan growth can largely be chalked up to demographics. With millennials now graduating, loan growth is normalizing. Average loans are, in general, supportable if the graduate is employed, and the employment market for the millennial cohort has improved dramatically over the past five years—and even more so for those with the education that the student loans funded.

Although there's no doubt that many are struggling on an individual basis, student loans do not appear to represent a systemic threat, based on the underlying ability of students to afford and pay back their loans.

Also acting as a safeguard against systemic problems, many, if not most, of these loans were cosigned by parents, who are also liable for repayment if the student defaults. Again, while this will certainly be a hardship for some, it does substantially reduce the potential for a crisis.

Any form of debt represents a risk, but the risk from student loans doesn't warrant the concern many are expressing. There will certainly be defaults—probably many of them—but the system as a whole should be just fine.

Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.