Posted in: Education

Debt Crisis: Student Loan Defaults Set Record [Report]

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College students who have borrowed money for tuition are failing to pay off their student loans in record numbers, according to a new report on the educational lending crisis. Student loan debt in the US has now reach an unbelievable $1 trillion.

The number of students walking away from their loans has increased dramatically, according to the Los Angeles Times:

“The student-loan delinquency rate in the last three years has risen to 15.1%, up from 12.4% from 2005 to 2007, according to FICO Labs, a unit of Fair Isaac Corp., which publishes consumer credit scores. That’s a nearly 22% increase.

“The report is the latest red flag signaling that monstrous debt is a problem not only for students but potentially for the broader economy as well.”

Annual undergraduate tuition can go as high as $60,000 a year at some educational institutions, and government-guaranteed financial aid encourages more and more runaway spending by colleges and universities rather than budgetary reforms. Undergrads owe on average $27,000 after they get out. For graduate school, the debt load often rises to the six figures with no assurance of a job waiting (which is in part why law school applications are imploding).

Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs, expressed grave concern about the student loan default rate:

“This situation is simply unsustainable and we’re already suffering the consequences. When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default. There is no way around that harsh reality.”

Do you think debt from student loans (a.k.a. the higher education bubble) could pose a danger to the economy similar to or even worse than the subprime mortgage meltdown in 2007-2008?

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