Student Loan Defaults Likely To Spike In Coming Years, Almost Half Of Borrowers Affected

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Student loan debt has become an increasingly hot topic of conversation in political circles, and for good reason. Currently, a million debtors default on their student loans every year. According to recent studies by the Urban Institute and Brookings Institute, that number is likely to spike to over 40 percent of all borrowers by 2023, as reported in the West Central Tribune.

Once a borrower fails to pay on their student loan for nine months, the loan goes into default. The Urban Institute says that only mortgages outrank student loan debt as the largest debt category in the U.S., and the average borrower takes 19.4 years to pay off a student loan.

“We’re still dealing with the fallout from the financial crisis (of 2009),” said David Flynn, an economics professor at the University of North Dakota.

“Income has remained stagnant. Not all incomes have recovered since the crisis.”

In addition to stagnating incomes that are creating a greater debt burden, Flynn suggests that another factor in the rising number of defaults is simply that more people are attending college. “Most people are viewing college as a way to get the career and earnings that they want,” he said.

College students are not typically cognizant of how much debt they can reasonably take on. Borrowers often have higher expectations for earned income after graduation. Income growth is uneven, as fields like computer programming and finance are growing at the moment, while many other fields have stagnating income. Debtors should be aware of how much they will reasonably make in their field after graduation, and borrow accordingly.

“Generally, the idea is that a college degree pays for itself,” Flynn said, “but if you borrow way more than you’re projected to make, that’s not going to be the case.”

While students attending college are finding those income expectations to be disappointing upon graduation, the other side of the issue is the rising costs of attending college.

“Eventually all major players are going to have a reckoning on what we’re doing,” Flynn said. “Why is this necessary? Are we sending too many people to college?”

Defaults are actually higher for those who borrow small amounts and those who never finish college, giving some credence to Flynn’s assertions.

“It’s not surprising that those who go to a for-profit university had the most debt, and even those who don’t finish have high amounts of debt,” said Flynn.

The issue has emerged on the political landscape, with many candidates crafting student debt elimination or management proposals into their platform, and the issue becoming increasingly important to a growing voter base of millennials. Yesterday, Marketwatch profiled five 2018 candidates who have made the issue a priority, while Forbes published the results of a study showing the catastrophic domino effect of student loan debt on the lives of ordinary Americans and the economy at large.