Student Loan Debt a Serious Problem

February 6, 2014

The student loan default rate has been climbing since the recession, says CNBC.

  • Of 2012 graduates, 71 percent had student loans with an average debt of $29,400.
  • A May 2013 report from the Consumer Financial Protect Bureau estimates outstanding student loans to be at $1.2 trillion.
  • Students are also falling behind on their monthly payments -- the 90-day delinquency rate increased from 10.9 percent to 11.8 percent in the third quarter of 2013.

President Obama's State of the Union speech referenced the Health Care and Education Reconciliation Act, a new law that imposes a 10 percent cap on monthly student loan payments relative to income. The law goes into effect this year. Students who start college in 2014 can elect to repay their loans on an income basis with this 10 percent cap in place, rather than the 15 percent income cap that exists under current law.

Moreover, the new plan allows student balances to be forgiven after 20 years of monthly payments for most borrowers, while the remaining debts of military personnel, teachers, nurses and public service workers will be forgiven after only 10 years.

But the president's plan does little to solve the root of the problem. Unlike other debts, student loans are not dischargeable in bankruptcy, and many young people don't understand the true weight of the debts they owe.

  • Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, said that too many students do not grasp the financial impact of their borrowing. "Young people don't really understand the repercussions of taking on loans. It is a serious commitment and will affect you for many years," she said.
  • Many experts say more needs to be done in high schools and colleges to teach students about personal finance, so they don't find themselves drowning in debt later.

Source: Elaine Pofeldt, "Obama's Education Focus Overlooks Next Financial Contagion," CNBC.com, January 29, 2014.

 

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