As we enter the new year, student loan debt continues to climb at a rapid pace. Last month, this debt hit the record of $1.465 trillion. The reason why this type of debt continues to grow is because borrowers are having a difficult time. They don’t know how to pay back so much student loan debt. There are so many fiscal risks that come along with it.
It’s difficult to imagine how hard life would be to have that much debt in the middle of an economic crisis. Yet, that’s what millions of Americans went through over the last decade. Since June 2009, student loan debt has doubled. It was a paltry $675 billion. That is a lot of money, but nothing compared to what it is today.
“Over 90% of student loans are guaranteed by the U.S. Department of Education. Meaning that if a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the U.S. government budget,” said Paul Della Guardia, an economist at the Institute of International Finance in emailed comments.
The Student Loan Debt Crisis
The hardest hit time for the student loan debt crisis was 2012. Loans handed out on this year defaulted at a much faster rate than any other year. According to Bloomberg analysis, this is the year when students had a more difficult time making monthly payments. This is compared to students who receive similar loans either before or after 2012.
These loans were taken out by young adults between the ages of 24 and 33. This is that age when adults are trying to establish their lives and their careers. To try to start families and build a home. Yet, when this age group graduated college, the unemployment rate was twice as high it is right now.
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This meant that so many Americans graduated from college with a twinkle in their eye, but couldn’t find any work. There student loan debt kicked in and they couldn’t afford it. The Bureau of Labor Statistics indicates that it took this group 3 times longer to find a job. The problem is, 2012 only marked the beginning of the crisis.
A Continuing Dilemma
While the job crisis appears to be over, the student loan debt problem continues. You had about a decade where not only jobs were scarce, but interest rates continue to climb. In fact, the current interest rate is 100 basis points higher than in 2012. This means that the people couldn’t afford their debt now have even more to pay.
There are 2.7 million student loan debt borrowers out there who owe over $100,000. That’s a lot of money! That’s a house mortgage. Having that much debt makes it nearly impossible to get a loan. And with increasing interest rates, is nearly impossible to get out from underneath it. This is a crisis that continues to grow with no relief in sight.
