More Bad News on Student Loans
September 23rd, 2009As borrowing rates soar and debt accumulation spirals upward, the national student loan default rate hits a nine year high.
A recently released report from the U.S. Department of Education revealed yet another alarming trend regarding college graduates and student loans. According to the report, the 2007 national default rate hit 6.7 percent, an increase of nearly 30% over 2006.
It was also the highest percentage in nine years.
As a percentage, the 6.7% represents about one student in fifteen, but that overall statistic is extremely misleading. According to the criteria used to define non-payment, those reported to be in default are those students who were scheduled to begin loan repayment by September 2007 but failed to make payments by September of 2008. That means that one in fifteen graduates had defaulted by the end of the first year of the scheduled repayment period! There is little doubt, that if the data were to include a two year period or a three year period, the percentage would grow significantly.
Too Much Borrowing
While most folks point to the economic downturn as the key factor, some college financial experts see the issue a tad differently. Tom Schmidt, Office of Student Finance associate director at the University of Minnesota, provided Mackenzie Martin of the The Minnesota Daily an entirely different take on the matter.
“Students need to be aware of their student loan debt at all times,” Schmidt told Martin. The associate director went on to explain that while the economy might be considered a contributing factor, the issue was exacerbated by students taking out larger and larger sums of money to cover increasing tuition and living expenses.
At the same time, Schmidt suggested students might be borrowing more than they really needed, that perhaps students may be “living better than they probably need to live.”
In other words, too many students are not thinking properly about the debt they are accruing.
We have discussed many times our concern with student debt rates. According to the CollegeBoard’s 2008 Trends in Student Aid report, roughly 60 percent of bachelor’s degree recipients borrowed some amount to fund their education. As of 2007, the average debt of graduating seniors was nearly $23,000.
The percentage of borrowers is too high and the average debt is simply too large. Simply stated, the downturn in the economy provides a strong reminder that debt is not something to enter into carelessly. While some may think a debt load of $23,000 should prove very manageable, that amount is far too much for those struggling to find viable employment (the status of the majority of college graduates the past two years).
It is imperative that you graduate with as small a debt-load as possible: a reasonable goal is to keep it under five figures (<$10,000 maximum) though an even better goal is zero. And the best way to keep that debt to a manageable level is to reduce your expenses.
That process begins with selecting a school that is in your price range and ends by limiting unneeded expenditures. Yet both of those elements remind us of a clear message – think twice about taking on significant amounts of debt.
That college degree could actually do you more harm than good if you begin your post graduate life defaulting on loans and destroying your credit score before you have had the chance to build one.
