As more people become trapped by student loan debt, the larger the crisis becomes. While some people are able to keep up with their payments, many Americans cannot. When that happens, they become seriously at risk for defaulting on their loan. Defaulting on your student loan can negatively impact your credit score and more.
Before a person is considered to be in default, they are considered delinquent. According to Bloomberg, the amount of delinquent student loan dollars has reached a new record high. The Federal Reserve Bank estimates that around $166 billion is currently overdue. To be considered delinquent, you must miss 90 days’ worth of payments.
This only goes to show the extreme situation caused by student loan debt. Many people are desperate for help, begging the government to forgive what they owe. However, that idea doesn’t seem likely, even with the push from younger Democratic candidates in recent years. The entire program needs to be overhauled to allow the government to recoup its losses.
Causes of the Student Loan Delinquencies
The crisis really started in 2008 as a result of the beginning of the Great Recession. By 2012, so many people were out of work that they decided to go back to school. They were enticed by fraudulent job-placement claims and the promise of a good job once they graduate. When they did leave school with a shiny new degree, the job situation remained equally as bad.
That meant millions of Americans had an abundance of student loan debt and no job to make payments. Delinquencies and cases of default increased dramatically, as did the total amount of debt owed. Currently, Americans owe $1.53 trillion worth of student loan debt, a number that might hit $2 trillion soon.
Even now, as unemployment rates have fallen below 4%, the problem continues. We’re seeing the strongest job market in many decades. The problem is, wage growth hasn’t increased too much. People still aren’t making enough money to pay for their student loan debt. They’re also fighting to be able to afford other basic necessities.
We’ve extensively covered how much the economy is due to be impacted by this crisis. A large portion of millennials are fighting to keep their financial heads above water. Even income levels among college graduates remain low and is a major hindrance.
Income levels for graduates “are not necessarily high enough for debt payments overall,” said Ira Jersey, Bloomberg Intelligence interest-rate strategist. “If you have a choice to pay your student loan or for food or housing, which do you choose?”
Higher Deficits on the Way
Student loan delinquencies and non-payments hurt the U.S. economy in a number of ways. As just stated, if you can’t afford the basics, you’re not spending money on the big things. Many millennials are putting off major life decisions, like buying a home and getting married. They simply can’t afford these things like our grandparents and parents did before them.
Another impact to the U.S. deficit. The national debt recently reached $22 trillion. $1.53 trillion of it is due to the student loan deficit. That’s because the majority of student loans are given by the federal government. While this type of debt most likely won’t cause another Great Recession, it still hurts the economy.
http://financialhelpers.com/student-loan-payments-may-soon-be-taken-from-your-pay/
As the cost of a college education continues to climb, this problem will only grow. Tuition has more than doubled in the last twenty years. More than ever, young adults have to ask whether a degree is right for them. It’s not a simple answer anymore if spending four years in college will enslave you to your student debt for decades to come.
