While I believe that I have made impressive strides to repay my student loan debt, there are new reports that delinquency rates are increasing in the student loan market. Last week, Forbes posted an article that contained a bunch of interesting information – here are some of the juicier parts of the article:
National credit bureau TransUnion revealed recently that the 90- and 30-day delinquency rates on private student loans were 6% and 7.5%, respectively, in the first quarter of 2010. That’s up from 5.4% and 6.8% in the previous year. Meanwhile, the Department of Education recently released its fiscal year 2008 draft student loan cohort default rates, which showed that federal loan defaults rose from 6.7% in 2007 to 7.2% in 2008.
Rising delinquency and default rates indicate that borrowers are struggling to repay the loans that they took out for college, especially in the midst of the current economic environment. The fact that student loans are unable to be dismissed in bankruptcy has created a financial nightmare for some borrowers. They’re drowning in a mountain of student debt and can’t collect the dividends that a college education is supposed to pay.
That last sentence – the idea that graduates who are drowning in student loan debt are unable to collect the dividends that a college education is supposed to provide – is what I find most interesting. What, exactly, are those dividends in the context of 2010? Can we safely say that college graduates earn more over the course of their lifetime than high school graduates? The studies still say that the answer is a resounding “Yes!” but we do not know how the current recession has altered those findings in the future. For example, if a subsection of college graduates from whichever group that was studied was supposed to make $1,000,000 more in their lifetime than their high school graduate counterparts, then is there data available to adjust for repaying (an estimated) $100,000 in student loan debt as well as being out of work from a high paying job for three years?
I don’t know, but I bet the results would be interesting to look at!
Taking a different view of this issue, I think that the real “dividends” that student loan borrowers are not able to access in 2010 are the great deals that can be had and could have been had on new cars and buying a home. Mark my words – the real estate market will not rebound from its devastating fall from the last few years because we are graduating a generation of students that are too burdened with student loan debt to enter into the housing market. And for those that are able to enter the housing market, they are unable to furnish their new home with the types of consumer goods that keep the overall economy afloat.
I’m not suggesting that this is a good or a bad phenomenon. I’m one of the rare believers that if you take out student loans to attend college, then you should be obligated to repay those loans. Like all things in life, I believe in living up to one’s obligations and doing what you’ll say that you’ll do. If I were to take some personal loans out, I’d make sure to re-pay them, obviously. In my situation, I required $121 thousand in student loan debt to attend college and graduate school and I intend to repay every penny as soon as I can (I’m down to $84 thousand still owed and that number is getting lower every week). However, even though I might be in the minority on this issue, I do think that the student loan suffocation is going to be the silent, stifling factor in this economic recovery.
If you get a chance, take a few minutes and read that brief article posted on Forbes.com and linked above. It talks about the possibility of making private student loan debt dischargable in bankruptcy court as it used to be before 2005. Some interesting stuff…