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Student loan debt defaults are escalating as recent grads face low paying jobs and high unemployment rates. State and federal government cutbacks in education spending have moved more of the burden of financing an education to students and parents who have taken out record levels of student loan debt. Total U.S. student loan debt is just short of one trillion dollars.
U.S. student-loan debt rose by $42 billion, or 4.6%, to $956 billion in the third quarter, the Federal Reserve Bank of New York said Tuesday. Overall household borrowing fell during that period.
Student loan debt default rates have risen to 11%.
Student loan debt default rates are now higher than the default rates for other debt. Americans have more student loan debt than credit card debt. The combination of unemployment and low paying jobs with high levels of student debt is acting as an economic anchor on young Americans.
Payments on 11% of student-loan balances were 90 or more days behind at the end of September, up from 8.9% at the end of June, a rate that now exceeds that for credit cards. Delinquency rates for all other consumer-debt categories fell or were flat.
For profit colleges have very high loan default rates.
Nearly half (47 percent) of defaulters attended for-profit colleges, which
enroll only 13 percent of students. These data underscore the need for more oversight and stronger standards at schools where poor student outcomes are the norm, and for intensified efforts to help borrowers enroll in affordable repayment plans before they default.
Because student loan debt is not dischargeable in bankruptcy, except in cases of extreme disability, it has become a form of debt servitude for young people who are unable to find good jobs. The government needs to crack down on exploitative for profit colleges and it needs to act to reduce the debt burden through a combination of bankruptcy law reform and debt forgiveness. Much of the existing debt cannot be repaid. The present expansion of student loan debt is not sustainable. Young people who optimistically thought they would find good jobs upon graduation are being crushed by bad jobs and unmanageable debt.
For an excellent detailed discussion of for profit college loan defaults see MotherMags' recent front page posts.
The fastest growing group of debtors for college loans is seniors age 60 and up. More than 2 million seniors are saddled with college loan debt. College debt held by seniors has risen from $8 billion in 2005 to $43 billion in the first quarter of 2012. Ninety day delinquency rates for seniors have risen from 6 to 10 percent in that period.
Many of these seniors—119,000, nearly double the total five years ago—are losing part of their Social Security benefits to the government in order to pay off their loans. The consequences facing them are moving in with their children, less money for retirement and filing for bankruptcy.
Originally posted to FishOutofWater on Wed Nov 28, 2012 at 01:45 PM PST.