There’s talk about the student loans bubble and the educational debt crisis, but it all seems so hypothetical. If it bursts… If the crisis worsens… But now that numbers have been released for 2012, the student loan debacle seems all too real. An incredible 35% of all student loans owned by borrowers aged 30 and below are now delinquent – 90 days or more past due. And 44% of all student loan borrowers are in deferment, forbearance or ongoing schooling. Is it me, or does that add up to most student loans that aren’t being paid in a timely manner? That can’t be right…
Shocking Numbers – Is It Fuzzy Math or Scary Statistics?
Here’s what I know for sure – between 2004 and 2012, student loan debt has tripled and now teeters perilously close to $1 trillion! When I dug further into the Federal Reserve data, what I found is that out of all borrowers, 17% were delinquent by more than 90 days. Whew. That’s a little better. But when you carve out statistics for borrowers aged 30 and younger, the numbers skew drastically to delinquency – that’s where the 35% comes in that’s making headlines. And while that’s better than one-third of student loans in general being terribly past due, it’s a sign that this financial crisis is biased to fall on younger people.
Where’s the Good News?
There’s not much as far as I can see from the newly reported numbers. If you take the overall 44% in deferment or non-paying status and combine it with the overall 17% delinquency rate, that’s 61% of student debt not being serviced. Less than half of all student loans are being timely paid – whether or not there’s a reason for the non-payment.
What makes this worse is that interest is accruing on all these loans and on the ones in delinquency, penalties, late fees and collection costs are taking oppressive student loan debt to crippling levels. If this situation is left to fester untreated, we are going to have a generation of people facing unparalleled debt. What will happen? How many will lose hope?
Stress at work is bad enough – sometimes even killer – but imagine if you have all the rigors of your job along with a monthly student loan payment the size of your mortgage.
What’s the Solution?
I’m no student loan savant, but it seems like something’s got to give. If this debt goes completely bad, there’s no doubt there will be a tsunami sized ripple effect on the economy. My suggestions? For starters, cap interest rates. From there, cap late fees and collection costs to a flat dollar amount. If you read my blog on student loan sob stories, I wrote about a number of graduates who saw their student loan balances literally double when interest rates fluctuated or they got behind on payments.
There will come a point where we as a society have to decide on people before profits. Private student loan lenders and government programs may have to sacrifice some of their profits to keep the bubble from bursting. As I see it, the worst case of the student loans crisis is a full-on disenfranchising of a generation of Americans. And that shouldn’t be okay with anyone…
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