The words “college degree” for generations meant guaranteed financial success and employment, now many college graduates, who are overwhelmed with student loans debts and unable to find a job, have had to move back to their parent’s home.
The Federal Reserve Bank of New York has reported that for the first time in history the student loan 90 day delinquency rate has moved above 11% (which is considered high). It currently exceeds $965 billion and is more than credit card and auto loan debts.
To give you perspective, when the subprime mortgages bubble burst in 2008 the rate of delinquency had reached 21%. If the student loan debt reaches a comparable level many banks may be looking for similar bailouts as they received in 2008, and that means taxpayers may once again be left “holding the bag.”
What if student loans never reach a delinquency rating that causes a crisis? Experts claim that it could still weaken the financial recovery of our economy. According to Pew Research, the average student loan debt is approximately $23,300 and up to one in five families currently have student loans.
What is even more concerning is that getting rid of the debt, even through bankruptcy, is almost impossible. Economic advantages of being debt free such as the ability to make large consumer purchases, get married or invest are hampered if a worker has high student loan debt. What many experts report is that many younger workers are “putting off purchases and avoiding certain activities that are essential to our economy.”
Another issue no one is talking about is the fact the Federal Government eliminated private investors in the student loan industry in 2010 and now owns 93% of all student loans. What does this mean when the debtors don’t pay: you and me, the taxpayer, suffer.
Experts also contend the Government who spends the taxpayer’s money, is less conscientious about validating the risk of the loans they make to students. For instance, they do not effectively evaluate the credit worthiness of students. And why should they? What happens if students cannot pay? The Government could care less- it’s not their money anyway.
The involvement of the Federal Government in making loans so easily available and the market’s willingness to pay any price (with little risk) has made the cost of higher education sky-rocket. Include the fact that “conventional” wisdom still dictates a college degree is a “must have” and parents continue to shell out thousands on a questionable investment and we have vicious cycle with no end in sight.
Questions need to be asked. For instance, does everyone really need to attend a four year university? No, just like not everyone needs to own a home. Hopefully, it will not take a massive student loan crisis and taxpayer bailout of the student loan industry for us to learn that lesson a second time. I, for one, cannot afford it.
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