The Looming Student Loan Crisis

Thursday, January 24, 2013

The student loan/financial aid system is messed up in this country. Not only is the dollar amount of current student loans standing at one trillion dollars, the cost of tuition keeps going up. We are saddling a whole generation with massive debt, none of which can be discharged via bankruptcy.

Add to that the current state of the economy and the relative employability of college graduates, the question has been raised whether or not it is even worth it to go to college.

This post is going to focus on student loan debt and what it means to the economy. As I noted, federal student loans and other loans are largely guaranteed by the government, meaning if you default, the government assumes responsibility for said loan.

With the government currently guaranteeing $956 billion dollars in student loans, it is clearly a large sword hanging over the economy and borrower’s heads. The current default rate is either 11% or according to some 22%. The default rate has been higher in the past, but the dollars loaned are nowhere near what is outstanding right now.

Practically, what does this mean? If these loans can’t be discharged via bankruptcy, what is the issue? There is no mechanism to minimize what amount a borrower pays monthly, so they are more likely to just stop paying. The government is serving these loans, so they are taking the loss and adding to the debt already being incurred by the government.

This is a deep issue and needs deeper discussion than is available here. There are some good ideas out there on addressing this issue. For further reading, check out these articles:

Stay tuned as we delve deeper into this issue and other financial aid issues in additional posts to come.


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