American college students have collectively accumulated a whopping $530 billion dollars in college debt. This staggering figure is up 120 percent in the past decade.
The average amount of college debt upon graduating or leaving college is just over $27,253. At an average interest rate of 7 percent a $10,000 college loan paid off over ten years ends up costing over $17,000 or nearly doubles the initial loan. Students that carry the average loan of $27,253 will also end up paying substantially more than the initial loan. These dramatic changes in college debt have significant implications for the larger economy. Additional bad news is that nearly half of all college grads are working jobs that do not require a college degree. About 4 percent of college grads in 2011 were working jobs that did not require a college degree and 38 percent were working jobs that didn’t require a high school diploma according to the Center for College Affordability and Productivity. In 1970 less than 1 percent of Taxi drivers or Firefighters had college degrees now just over 15 percent have college degrees. As the economy continues to stagnate, students that have borrowed money are much more likely to default on their loans than students from a decade ago. The student loan delinquency rate is 15.1 percent up from 12.4 percent in 2007 according to the Fair Isaac Corporation which publishes consumer credit scores. The increasing loan delinquency rate comes as student loan debt has increased to $27,253 up 58 percent from 2005. By contrast, credit-card and car loan debt balances declined during the same time period. Defaulting on a student loan has consequences including a downgrading of an individual’s credit rating which in turn will make purchasing more difficult. This in turn has implications for the national economy. There are other consequences for defaulting on a college loan as well. Students defaulting on their loans cannot file for bankruptcy. After 270 days of no payment, a student will be considered in default on their college loans. After several weeks creditors will be calling at least four times and four written notices will also be sent. Then, a final demand letter will be sent informing the student that they must pay their loan immediately or a default claim will be filed on the loans. After a the default claim is filed the student will receive a stern or even unpleasant telephone call and if a repayment negotiation is not successful within 60 days, the student will be reported to the National Credit Bureau. Once done, the students credit will be badly damaged making them ineligible for credit cards, mortgages or car loans. A student’s tax refund can be withheld and used for payment. If the student has a salary part of their salary can be withheld and used for payment. The student may be summoned to court and sued for the entire amount. The student may be required to repay the debt under an income contingent repayment plan and thus repay more than the original principal and interest on the loan. The student will be ineligible for state or federal student aid until satisfactory arrangements for repayment have been made. Students may become ineligible for deferments and students may not be able to renew professional licenses. If a student encounters financial difficulties, contact the lender right away. Consider applying for a deferment or forbearance on loans. It may be possible to change payments to a graduated repayment schedule or income contingent repayment plan. Even with all the risk, college students do enjoy an unemployment rate of 4.5 percent compared to 9.7 percent for non-college graduates. College graduates also make more money across time. An additional issue to factor in is the large number of students whose parents are taking out college loans for their children. Money that previously would have been put away for retirement is instead being utilized to pay student college debts. Many adults are working longer as a result and they are further reducing the job market as more older workers are working even longer to pay college debt for their children while many new college grads are waiting on the sidelines.
Remember, all kids count.
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