It wasn’t too long ago when a college degree was a key to the future; it led to a well-paying job straight out of college, which in turn led to home ownership, and a whole range of middle-class goals. Student loans were a worthy investment for the students, and the banks because, eventually, they would be paid off by the steady job with interest. However, students are increasingly leaving college and entering the real world with crippling debt, and no guarantee of getting a job to pay it off right away. As a result, the debt goes unpaid for longer, the interest grows, and the young graduate’s prospects go down.
As of March 31, 2017, Americans collectively held $1.34 trillion of student loan debt, which is an increase of $34 billion from the previous quarter, according to the Federal Reserve Bank of New York. To some analysts, these figures look eerily familiar to the mounting debt from the mortgage crisis. The similarities don’t end at rising debt; the Citi report observed that “Default and 90-day delinquency rates are about 11 percent. To some this might appear eerily reminiscent of the mortgage crisis where delinquency rates had peaked at 11.5 percent in 2010.” Since 2009, outstanding student debt has almost doubled, and the average undergraduate student borrower graduates with more than $30,000 in debt.
Of course, student loans aren’t the only reason why individual Americans have accumulated so much debt since March 2011. An article at www.debtconsolidationusa.com states that “According to the U.S Debt Clock, the average amount of debt person was $51,960. Yet, the amount saved per family was approximately $7,099. People owe more and save less.” Although the article does account for student loans and mortgages as the reason for debt, they report that another part of it comes from credit card debt, and other forms of unsecured debt. “Unfortunately, many people use their credit cards on a consistent basis and don’t pay the balance up each month. Many adults do not know how to manage their credit and can easily fall victim to easy credit and high balance.” Yet, with many graduates unable to get a well-paying job, it might be possible that the two variables are related.
College graduates are more financially aware than previous generations, so they know that they need to build up good credit if they hope to buy a house or qualify for a business loan one day; credit cards are an easy way to do that. There are even websites that compare credit cards for recent college graduates so they can get the best deals. Unfortunately, without the income to make the monthly payments, credit cards only add to the debt that students have already accumulated. Missing one loan payment can wreak havoc on an individual’s credit score, and missing several can have a longstanding impact on their financial security. But taken together, the statistics at studentloanhero.com show how overwhelmed US student debt holders are.
*This post was contributed. Family friendly posts are welcome.