The U.S. Student Loan Default Crisis – Video
Last year, nonprofit Project on Student Debt at the Institute for College & Access released a report on the U.S. student loan default crisis. This is the latest report to date on student loan defaults. The statistics for borrowers falling into debt keep getting higher and higher. Over the course of just 3 years, the percentage of borrowers defaulting on their loans has gone up. Over 20% of federal loan borrowers have now defaulted on their student loans because they cannot afford to pay them back on time. This translates to $121 billion in loans, an all-time high for U.S. borrowers. When evaluating the findings of this report, it is easy to understand why so many borrowers are faced with this financial burden. It points to two core reasons why these defaults are rising across the nation: the cost of college is too high and the average college graduate worker is not making enough money to repay their debts.
Student loans going into default when borrowers cannot make their payments. After 270 days of missing payment deadlines, the loans go into default. With tuition hikes and a highly competitive job market, it is easy to see the challenges with an average worker paying back loans. The borrower’s income is not high enough to support their loan repayments. For example, when students are graduating with a bachelor’s degree and getting jobs, they are typically working at entry-level jobs that don’t pay well enough. This creates more obstacles for paying back student loans, resulting in borrowers turning to refinancing their payment plans and enrolling in income based repayment plans. As of December 2015, about 4.6 billion borrowers enrolled in income based repayment plans. This is a 48% increase from the previous year and a 140% increase from December 2013. It is clear that the income of an average college graduate is not sufficient enough to keep up with the high cost of college tuition.
In the midst of the debt crisis, Michigan graduates have been hit the hardest. At a default rate of 12.8%, Michigan graduates have the highest rate of default in the nation. Since 2004, Michigan student debt has climbed up to nearly 60%. Upon graduation, about 62% of 2014 graduates left the school owing money in student loans. The average 2014 graduate had $29,450 to pay back, as opposed to $18,754 owed a decade ago by the average graduating class. Unless changes in policy are made, the costs of getting a college education are going to continue to hike, making it completely inaccessible to the average student. The student loan default crisis is not just an issue for graduates, it is a national crisis. With such a large number of student loan defaults, it is impossible to ignore the issue any longer.
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