Home > News, Policy > Student Loan Defaults on the Rise – Let’s go to Vegas!

Student Loan Defaults on the Rise – Let’s go to Vegas!

After remaining relatively stable for several years, the student loan default rate is now on the rise.  The Wall Street Journal reports today that the downturn in the economy, especially the credit crunch, is forcing more student loan borrowers into default and the numbers could rise even further:

The fear is that default rates on student loans will increase, as seen in the mortgage and credit-card worlds. SLM Corp., or Sallie Mae, the largest private student lender, reported a delinquency rate of 9.4 percent in September, up from 8.5 percent a year earlier. “It’s clearly because of economic conditions,” said spokesman Tom Joyce. “The credit crunch has washed onto the student-loan beach.”

Until now, the default rate on federal loans has remained relatively stable. The most recent statistics, from 2007, show only 5 percent of students defaulting within two years after they leave school and begin repayment. Experts think that rate could begin rising as the effects of the credit crunch and slowing economy take hold.

In spite of yet another article on the problems of student borrowers, I’m beginning to think that the people in charge, or at least those reporting on them, don’t understand how troublesome the situation really is.  The article mentions some measures that students are taking to avoid default: getting second jobs, borrowing from parents, and, naturally, going to Vegas and hoping for the best.  Um, hello?  When people’s best option for making their loan payments is a lucky hand at blackjack, it may be time to start rethinking what we’re doing to America’s youth.

The article points out that even as the ability to pay plummets, student loan debt is higher than ever.  It also notes (very briefly) that student loans are one of the only debts with no bankruptcy protection.  But the solutions it offers are just more of the same – deferments, forebearances, and refinancing.  Even though some of the people interviewed for the article specifically note that their deferments or forebearances have run out, they are still being told to simply get a deferment or forebearance.  As for refinancing, it’s been widely reported, including on this blog, that the current credit crunch has drastically restricted that possibility.  And all of these options mean more debt since the interest will continue to pile up the longer payment is delayed. 

It’s clear that the current options for student loan relief are simply not good enough.  We need something revolutionary, a radical and total shift in the system.  How about a moratorium on interest?  How about a bail-out for those who have made good faith efforts to secure employment?  How about reinstituting bankruptcy protection after 10 years?  Something, ANYTHING, besides the old “Just put it off until later and pay double” mantra.  That’s what got us into this mess in the first place.

  1. Linda
    December 3, 2008 at 9:38 am

    Isn’t the student loan program an early bailout that never ended? Isn’t it a debacle? It creates a vicious cycle where schools keep raising their tuition because the students keep being able to pay it through loans. And if graduates don’t get a high paying job in the very first year after graduation, they’re screwed because of the interest compounded.

    We have been robbed of our futures. And the market can’t even correct this because the powers granted to the Dept. of Education are absolute. So, isn’t this the program that drove us to no money down on houses because we couldn’t save up for retirement while saving up for the downpayment on a house while paying the student loan bill? If you’re earning $100,000 a year with $1,000 in student loan payments, you still feel you should have a house that matches that income. The mortgage companies certainly thought so.

    Added to the mortgage and school loan payments is the doctor bill to pay for the birth of your child. So we can’t get sick because that would be another bill. And luxuries? Are you kidding? Why is it so hard to dispell the myth created that people were living large and not paying their student loans? Why are we so silent about the thing that is killing this nation’s prospects, creativity, and thus potential?

    Why can’t we restore the bankruptcy protections so that distressed graduates have something left to create a small business without asking for an additional government handout. Isn’t the government losing money on the income contingent plans anyway? And do the people in those plans realize how much income tax they will have to pay at the end when they retire?

    We are so screwed. This program is a debacle and we’re still supporting it. Only a small number of people benefit from this program while millions are bankrupted and/or wearing themselves out trying to work two jobs; thus, taking away one job from another desperate person. What a hideous and embarrassing cycle that is so easy to end.

  2. January 15, 2009 at 11:00 am

    Vegas, Baby, Vegas !

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