As per two recent reports that were released at the end of January 2013, Americans are encountering an ever increasing and “unsustainable” struggle to repay their student loan debt. This is causing an increasingly adverse effect on the economy at large, as loan defaults, which are becoming more and more common, serve to effectively waste taxpayer money once borrowers, inevitably, default on their loans.
So what exactly is happening? Students are borrowing exponentially more money to finance their education. A recent analysis of 10 million credit files from Fair Isaac Corp. (FICO) has determined that in the period between 2005 – 2012, the average student loan debt spiked nearly 60% from approximately $17,000 to $27,000. According to the Wall Street Journal, in that same time period the amount of customers with at least two open student loans on their credit report increased from approximately 12 million to approximately 26 million in 2012. FICO estimates that the class of 2011’s average debt will be nearly $27,000.
Partly due to the current economic and employment climate, this burden of extra debt is taking its toll on students. In fact, many students are having a difficult time repaying their student loan debt. FICO reports that, as it pertains to student loans that were issued between 2005 and 2007, approximately 12 percent are at least 90 days past due. Forbes concurs, as a recent report cites 15 percent of loans issued between 2010 and 2012 are 90 days past due.
This has an absolutely devastating effect on students’ credit reports. FICO’s CAO (Chief Analytics Officer) Dr. Andrew Jennings stated unequivocally that this situation is “simply unsustainable” and expanded on the prospect of more students defaulting on their loans, the effect of such defaults on their credit ratings, and how this adds a hurdle to these students in potentially being unable to access to new credit, such as to start businesses or purchase a house. This of course has an overall detrimental effect on the economy as a whole and would preclude it from growing. Mr. Jennings added that even folks who are current on their repayment of their student loans tend to deal with very large debts, which effectively reduces the money they would otherwise have available to spend.
The current difficult jobs market is also exacting a toll on recent graduates. Many are struggling to find full time employment; some find employment but they are so underpaid that it becomes difficult for them to be able to pay off the loans and take care of other fiscal responsibilities.
TransUnion LLC also weighed in on the topic of student loans. TransUnion reported that as of the 1st Quarter of 2012, a third of all outstanding student loans are held by borrowers who present the most risk. TransUnion offered further insight, stating that at least half of student loan accounts are currently in deferment – this follows a review by TransUnion of every active student loan residing in its credit database and spans approximately five years, from March 2007 through March 2012.
Borrowers continue to struggle to find work after graduating college. This forces them into seeking forbearance or extended deferments, in advance and above and beyond that of the typical grace period offered during their schooling and immediately following graduation.
The Federal Reserve Bank of New York said that last year’s student loan debt $956 billion which was higher than the total for other consumer debt in the United States like credit card and car loan debt. Interestingly, unlike other consumer debt, student loan debt is very nearly impossible to discharge in bankruptcy court. In other words you are saddled with this debt for life, or as long as it takes you to repay it in full.