Student Loans in Crisis

May 2nd, 2011 @ 8:05 AM by Debbie Dragon

The federal government is being faced with an increasingly high numbers of student loan defaults. Just last year student loan debt passed credit card debt, and recent reports indicate student loan debt could hit a trillion dollars by year’s end. Students today are graduating with more debt than ever and just last year the average graduate exited college with a bill of $24,000, up 6 percent from the year before.

The increase of student loan debt is sparring higher default rates. With the sluggish economy and many college grads having difficulty finding gainful employment, debt is not being paid back. Even before the recession, student loan default rates were rising but the increase in numbers since 2006 is still shocking.

According to a recent article in USA Today, loans referred to the justice department for collections have risen sharply since 2006 and between 2009 and 2010 the number of referrals doubled. In 2006, just 918 referrals were made. In 2009 that number had risen to 2,596 and is 2010 it hit 5,393. These loans are the most delinquent and carry the highest balances of all delinquent loans.

The latest stats from the Education department are not encouraging. They show that between 2006 and 2008, just under 240,000 borrowers out of 3.7 million loans were in some type of loan default. In January 2010, the Education Department decided not to pursue defaulted loans totaling  less than $45,000 within the Justice Department. Loan holders under this threshold are instead pursued by contracted out private law firms.

What is causing the sharp increase? Well, it’s pretty straight forward. First you need to look at hikes in college tuition. Stats show that since 1978, college tuition has risen 900 percent, a figure well above inflation. Rising costs mean students very often need to borrow more. Additionally, federal funding like Pell grants have been cut and with today’s economic climate, many parents are unable to help fund their children’s educations forcing them to borrow more.

So what are college grads to do? What happens if they don’t pay back their loans? The answer is that they somehow need to find a way to make it work. There are programs to help them and they need to take advantage and find a way to pay their loans back. The education department says they are willing to help.

“The most important thing to remember is we want the loans repaid,” Jane Glickman, Education Department spokeswoman says in USA Today. “Borrowers can work on repayment plans ranging from deferments to extended grace periods. We try to do everything possible to come up with a repayment plan before taking the step of seeking a lawsuit.

One Response to “Student Loans in Crisis”

1. Jolie says:

   May 13, 2011 at 7:32 am

   Since 1978, college tuition has risen 900%?! That’s crazy! And depressing. A lot of people who are going to default on loans don’t think to call and inquire about options. These companies don’t want you to default any more than you want to. They are willing to help and there are options.