Washington Deep into this recession, we know that an increasing number of people no longer can pay their mortgages, their credit card balances or their car loans. Now throw into the mix the rising number of defaults on student loans.
The percentage of those loans in default grew to 6.7, up from 5.2 percent in 2006. The figures represent borrowers whose first loan repayments came due between Oct. 1, 2006, and Sept. 30, 2007, and who defaulted before Sept. 30, 2008, according to the U.S. Department of Education.
In other words, the department reported, nearly a quarter-million student loan borrowers went into default during that one-year period.
This latest statistic didn’t get a lot of notice in most major newspapers when it was recently announced. But this disturbing trend is worth more than a paragraph or two. While the administration continues to try to find ways to fix the financial industry and health care, there has to be more focus on curtailing what has become for too many the crushing cost of getting a higher education. Without that education, many people won’t be able to get well-paying jobs. And without better jobs, they risk eventually becoming part of this nation’s underemployed or unemployed.
Student loan defaults have been relatively low since hitting their peak of 22.4 percent in 1990. Then, nearly one in four borrowers defaulted, according to the Department of Education.
The rate dropped to a record low of 4.5 percent in 2003.
So at 6.7 percent, things aren’t as bad as they once were, yet they’re still not as good as they should be. But the default rate tells just part of the story. With wages depressed along with the high cost of housing and health care, even those who can keep up with their monthly student loan payments are stretching their education loans out for decades.
How bad is it?
Go to StudentLoanJustice.org and read the stories of “victims” living under crushing student loans. Also go to defaultmovie.com and watch the poignant trailer from “Default: The Student Loan Documentary.” The feature-length film chronicles the stories of borrowers who, years after leaving school, are trying to repay loan balances that have ballooned to two or three times the amount they borrowed.
For so many, the heavy borrowing is unsustainable, and there are a number of efforts under way to call attention to the student loan sinkhole.
The RainbowPush Coalition, headed by the Rev. Jesse Jackson, has launched a “Reduce the Rate” campaign (reducetherate.org) urging the Obama administration to allow people to borrow at extremely low rates.
“Students should get the same deal banks are getting,” Jackson said in an interview with me. “If banks can borrow at 1 percent, then so should students.”
Until there is a sustainable solution, there has to be a sea change in the view by many parents and students that college at any cost — no matter how unaffordable — is worth the years of financial burden and perhaps ruin.
In a study of 1,400 undergraduate students and parents, “How America Pays for College,” lender Sallie Mae and Gallup found that 42 percent of families did not limit their search based on cost — even after reviewing financial aid packages. Also, 70 percent of students and parents said a student’s expected post-graduation income either was not considered or did not make a difference on their borrowing decisions.
Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, has put out these words of caution: “If you borrow more than twice your expected starting salary, you will be at high risk of default.”
Secretary of Education Arne Duncan said in releasing the default rates that the department is “reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new income-based repayment plan.”
That program, which took effect in July, will give some borrowers a break. Under it, you may qualify for relief if your federal student loan debt is high relative to your income and family size. You may even be able to have the balance of your loans canceled.
Or, more specifically, the loans can be canceled after you’ve paid on the debt for 25 years. Unfortunately, this option isn’t available for private loans. You also are not eligible if your loan is in default.
While the income-based plan is helpful, it’s just more of the same. It essentially gives borrowers the opportunity to stretch out their payments, adding more interest costs.
I talked recently to a 52-year-old man who was still struggling to pay $50,000 in student loan debt.
Is this what we really want, people dragging their college debt up to or into their retirement years?