How Bad Is The Student Loan Crisis?
Americans have acquired more student loan debt than ever before. It is now the second highest consumer debt category behind only housing. Student loan debt is higher than both credit card and auto debts. The staggering debt is the only form of consumer debt that continued to grow during the Great Recession. To see just how grave the situation is, let’s break down the most recent national student loan debt statistics according to Student Loan Hero.
- $1.48 trillion in total U.S. student loan debt
- 2 million Americans with student loan debt
- 11.2% student loan delinquency rate (90+ days delinquent or in default)
- $351 average monthly student loan payment (for borrower aged 20 to 30 years)
The unsettling student loan debt crisis sweeping our nation doesn’t seem to be going away anytime soon. The average balance among the 70% of college graduates with student debt is more than $37,000. Unless the government intervenes with some type of forgiveness program, our nation can count on the worst recession in history with no middle class able to resurrect the economy. Because the economy has gone up and unemployment has gone down, people forget how this student debt is affecting the U.S. economy – but it is, and drastically so.
It’s easy to see how the debt affects an individual. Borrowers putting a big chunk of their monthly income towards student loans means they aren’t spending as much on other economy-boosting goods or services. The individuals who are delinquent or have defaulted inherit bad credit that doesn’t go away, even if they choose to file bankruptcy. This makes it almost impossible to save, invest or start a business. When fewer people are able to pay for goods and services, it slows down the economy. For a consumer-driven economy like the U.S., less spending means lower revenues, lower profits and ultimately slower financial growth.
Some people, including the previous White House administration, argue that student loans affect the economy in a positive way: they raise incomes, lower unemployment and increase tax revenues. Basically, the idea is that people who attend college are more productive, earn more and pay more taxes. Some people believe the massive debt can be viewed as an investment for a larger college-educated American workforce. But haven’t we always worked, with or without degrees?
If the outrageous cost of college continues to go up, the actual value of a college education will decrease. It’s a fact that more graduates do not make enough money to pay back their student loan debts in a timely fashion. There’s typically a six-month grace period before you have to start paying your loans back, and you can defer the repayment process for financial hardship and a few other reasons. But you inevitably have to pay back these haunting loans whether you can afford to or not. If you do not, the government or bank can garnish your wages, garnish your Social Security, and even offset and take your tax refund.
Is there light at the end of the tunnel? If you’re one of the millions of people drowning in student loan debt, contact your borrower now and see if paying even $25 a month would prevent defaulting. Ignoring this debt won’t make it go away; it actually makes it worse because interest will continue to accrue.
You may have had your loans default and go to a private collection agency. If your loans have gone into collection and out of the Direct Loan Program, contact the collection agency immediately and see what your options are.
Student Debt Relief reports President Trump’s latest views on the student loan crisis:
- Trump wants to create an Income-Based Repayment program wherein people would contribute 12.5% of their monthly income toward their loan repayment and would receive total loan forgiveness after 15 years.
- Trump plans to lower federal spending to cover the higher cost to taxpayers that results from increased forgiveness amounts due to shorter repayment terms
- Trump plans to significantly reduce funding for the Department of Education
Only time will tell what Trump and Secretary of Education Betsy DeVos decide to do. If you’re considering taking out student loans, make sure you know what you’re getting into. If you owe student loans, pay attention to them and stop using the reminder letters as coasters. These loans are not going away anytime soon. Get ahead of them before they bury your financial health and cash flow.