The student loan train wreck

One in five student loans which entered repayment since 1995 are in default.  That’s vastly larger than the home mortgage default rate.  And while homeowners can walk away from their mortgage debt by forfeiting their home, college graduates are saddled with the student loan debts until they’re paid off, they die or hell freezes over, whichever comes first.

As financial writer Zac Bissonnette pointed out, this is only the beginning.  College graduates in 1995 left school with about $13,000 in debt.  Now the figure is closer to $23,000, and more American college students are borrowing to pay for college than at any time in history.  As he goes on to say:

… What percentage of student loan borrowers had the course of their lives altered by their debt? How many pursued careers that they weren’t passionate about in order to make their monthly payments? How many had to rely on their parents — whose own retirement situations are often dubious — for a bailout? How many had to put off marriage or having children? How many suffered from stress or anxiety as a result of the struggle to make their monthly payments? How many had to skip grad school in order to start making a dent in their debts?

20% tells us how many had their financial lives literally ruined by their debt. But it tells us nothing about how many sacrificed their lives to pay their debt, and that’s the real tragedy of a nation that decided, in the span of a few years, that it makes sense to send 21 year olds out into the world with 5- and even 6-figure debt loads.

One of the positive accomplishments of the Obama administration and the Democrats is a reform of the college loan process to eliminate the middleman in government-guaranteed loans.  But this will not solve the real problem, which is ever-rising college tuition combined with a stagnant economy.

Of course home mortgage defaults are no longer considered a crisis, even though the rate is as high as it ever was.  And unemployment is no longer considered a crisis, even though it is stuck between 9 and 10 percent.

Click on The Student Loan Train Wreck: Why the Default Rate Is Just the Beginning for Zac Bissonnette’s full article on Huffington Post.

Click on Government Vastly Undercounts Defaults for a good analysis in Chronicle of Higher Education.

Click on One in Five Student Loans Go Into Default for another Zac Bissonnette report on AOL’s DailyFinance.

Click on Subprime Student Loans for my earlier post on the same subject.

Click on Student-Loan Debt Surpasses Credit Cards for a Wall Street Journal report.  About $300 billion of the nearly $830 billion in student loan debt has been added in the past for years. [Added 8/10/10]

Click on The Student Loans Scheme: a Gateway Drug to Debt Slavery for a report on the government’s role in exploiting student loan debtors.  [Added 9/5/10]

Click on New Debt Numbers for a report showing average student debt rose to $24,000 for the Class of 2009.  [Added 10/23/10].

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51 Responses to “The student loan train wreck”

  1. Dia Says:

    Many colleges promise more than they can deliver in order to get your money and no one prepares you for what comes after. More education needs to be focused on whether and how to get loans. Calculating the benefits of getting a degree is crucial in this regard.


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