May 14, 2012
Total student loan debt in the U.S. has exceeded one trillion dollars. For the first time, it’s bigger than total credit card debt or auto loan debt.
Banks seem to have decided that student loans are the next big vein to mine. They play on the desire of young people to get an education.
Desire or not, there’s a problem: most young people these days can’t afford it.
With the cuts in state funding for education, college tuition rates have been skyrocketing. Students and their families have been forced to borrow more and more to cover the costs. In 2010, two-thirds of college students needed student loans, and they carried, on average, over $25,000 in student loan debt. Some students finish college with loans totaling up to $100,000. Except for the election-year reduction to 3.4%, interest rates now range from 6.8% to 8% or even more – and that’s just for the government-backed loans; don’t even mention the privately-backed loans, with interest rates that vary all over the place – just like subprime mortgages. Typically, by the time they pay off their debt, students will have paid more than twice as much as they borrow.
College graduates with so much debt put off buying a house or car and having a family. These college degrees that were supposed to be their ticket to a brighter future, have instead become their ball and chain.
Today, three out of ten student borrowers are at least 30 days behind on their payments. Default rates are climbing toward ten%.
But the banks don’t worry about getting their money – the loans are guaranteed by the government, which means the taxpayers are on the hook to bail out the banks yet again.
And the government doesn’t worry – because, unlike other kinds of loans, student loans can’t be discharged if a person declares bankruptcy. The borrower is on the hook for life.
Defaulting doesn’t hurt the banks or the government, but it makes things worse for the borrower. When the borrowers default, late fees and collection costs get added on to what they already owe. Their paychecks, sick pay and even unemployment checks can be garnished, leaving very little behind to actually live on. And if they live long enough while still owing money, they’ll find even their Social Security checks garnished.
College – a financial salvation? No. More and more students – and even their parents and grandparents – are trapped in a pit of debt for the rest of their lives.
Young people, signing away their lives to chase a college degree, are sentencing themselves to a debtors’ prison as soon as they graduate!