The New York Federal Reserve’s report on consumer debt earlier this year confirmed that while every other type of consumer debt in the U.S. is dropping, student debt alone continues to climb. On the whole, this is of course good news; it means that American consumers are making slow but steady progress in their efforts to climb out of economic recession. Credit card debt is going down, as is auto debt and mortgage debt. So, what’s so special about student loans? Why is student debt the only kind of consumer debt that American consumers are not only having little success in paying down but are actually still accruing in record rates?
According to the New York Fed’s press release: ‘“Student loan debt continues to grow even as consumers reduce mortgage debt and credit card balances,” said Donghoon Lee, senior economist at the New York Fed. “It remains the only form of consumer debt to substantially increase since the peak of household debt in late 2008.”’ Not only has student debt increased as a whole, but delinquency rates continue to climb also in stark contrast to all other consumer debt. Several elements make student loan debt ‘special’; here are a few of the top contenders.
Age of Borrowers
While it’s true that parent debt is also rising at a disturbingly rapid rate, nonetheless, the problem first and foremost is shouldered by incoming college students; due to outrageously inflated tuition rates, the vast majority of students who choose to pursue higher education degrees have no choice but to take out student loans. Historically, fully-grown, financially solvent adults are the people who choose to take on big-ticket debt, knowing that they have already secured the means with which to repay their loans. Young people today are forced to become bigger gamblers than previous generations; postsecondary education is more crucial for success in our society than ever before and it has never been more expensive, even in relative terms.
New Entrants To The Job Market
So what happens once that gamble has been made? Graduates pour into a hostile job market, in which half of all recent graduates can’t find work. Thankfully for students, there are repayment options available to help students who find themselves in this situation. If students can stick with federal direct loans and avoid private student loans, they can meet the requirements for Income-Based Repayment, which can dramatically reduce monthly payments and eventually lead to debt forgiveness.
Dropping Out Of School
In worse shape than graduates entering the job market are students who have accrued student debt just like their peers, but dropped out before getting a degree. The number one reason students drop out is because of financial concerns. But students do drop out for all kinds of other reasons, not least of which is because of uncertainly over what they want to do with the rest of their lives. Do we really want to hold our young people hostage this way, backing them into a corner financially, so that they either make one choice and stick to it, regardless of self-discovery, or face a financial black hole?
Fortunately for students, there are student aid groups that can help with debt management. If the system is against you, there’s no better option than to learn to play that system to get what you need. With expertise on personal finance and debt optimization, borrowers need not fear the seemingly insurmountable problems of student debt management.