The Crisis Created by Delinquent Student Loan Payments

Seeking to improve their lives, young adults have headed to college. With the cost of learning, the majority of the students take out some form of student loan. It is easy for them to justify; these students are preparing themselves for a bright future with a higher paying job. What they don’t realize is that economists expect a crisis that can ruin the future students are trying to build. 

Today, total student loan totals have reached about 870 billion dollars. According to Bloomberg, almost 10%, or 85 billion dollars, of the student loans are currently delinquent; still more are in default. With the possibility of student loans reaching the $1 trillion mark for the first time in 2012, a study by Rutgers revealed that only 56% of the graduates of 2010 found work in their chosen field. Over half of the graduates take a job that provides an income much lower than they expected. A crisis is brewing that can affect the entire economy.

Blame it on the economy and the rising costs of higher education, but the average college student owes over $23,000 in loans on the day he graduates. About 10% owe $40,000, while others owe up to $400,000. The job market is tough and it is difficult to find work that will help the new graduate provide himself with the basics of life and pay off his student loans. Wall Street occupiers rallied to try to get the government to forgive the debt but the amount owed is more than the country can afford to forgive; in fact, the student loan debt is currently higher than credit card debt. 

When someone gets swamped with debts that are impossible to repay, bankruptcy may help an individual restore financial balance. This will not work for someone with excessive student loans because student loans do not go away with ease. File for bankruptcy and you still owe your student loans. Fail to pay for the loans and the government can take your tax refund. They can even reduce your social security benefits. Defaulting ruins credit history and can complicate life when individuals apply for credit or fill out an application for an apartment. 

Why is this a crisis in the making? The majority loans were made to people between the ages of 30 and 40. The economy depends on the spending power of this generation. When they are delinquent, they are less likely to make other purchases, go on vacations or any number of expenditures that would pump money into the economy. The housing market is floundering, trying to recover. A high percentage of new graduates are in now position to buy a home and, if they tried, would most likely be declined. The Federal Reserve has reported that, in the last three years, there has been a 50% decrease in individuals between the ages of 29 and 34 buying homes. 

The crisis brought on by delinquent student loans appears to be escalating. Lowering tuition and monthly payments may lend a hand to the problem, but be prepared for the economic effects to trickle down and affect you, too.