While the US citizens have been able to reduce credit card debt by some degree, the same thing can't be said about the student loans. More and more people are getting stuck with student loan debts. According to the recent report published by Federal Reserve, consumers owe nearly $870 billion on student loans, a figure much higher than the credit card debts. The credit card balance stands at $693 billion where as auto loans contribute to $730 billion in the country.
Student loan debt statistics
Student loans have become a necessity for the undergraduates. Students or their parents take out student loans every year. However, because of the high unemployment rate, poor economic condition of the country and scarcity of jobs are making it difficult for the students to pay back their dues.
It is said that around 37 million consumers are knee deep in student loan debt. An average consumer is carrying a debt load of $23,300. Around 10% of the educational loans are in a delinquency state - a shocking fact of the country.
It is assumed that the student loan debt will be the next big financial issue in the country. Even the chairman of Federal Reserve shares the same sentiment. His son is likely to complete his higher education with $400,000 in student loan debt. If such is the case of the son of the chairman of Federal Reserve, then imagine the plight of an average student in the country.
The student loan default rate is increasing with the passage of time. In fact, is expected that the student loan debt will cross $1 trillion in the future.
Reasons behind the student loan debt explosion
The current financial situation of the country is largely blamed for the student loan explosion of the country. College expenses are plummeting. Millions of students get enrolled into various colleges every year. However, once the students are completing their graduation, they are sitting idle at home. The terrible condition of the job market is not allowing them to get a job. This is making them financially crippled. They are not able to repay the loans taken out to finance their education. A recent report published by a renowned university reveal that only 56% of the students were able to get jobs in 2010.
Most students don't understand the terms and conditions of the loans. They don't understand the implication of taking out a large student loan. Actually, people at the age of 18 or 19 can hardly understand practicalities. Neither do they have great experience with loans. The easy lending terms and conditions of the student loans attract the undergraduates like a tempting chocolate. The result - millions of students are becoming overqualified without getting any suitable job.
Effect of student loan debt explosion
There is a large group of young graduates who are returning home with books and debt load. This has rarely happened in the past. Some people think that the nature of the student loan debt crisis is very much like the sub prime mortgage crisis of 2007. However, it is deemed that the affect would not be disastrous. The reason is around 85% of the student loans are given by the federal government.
It is the borrowers who will get seriously affected by the student loan debt explosion. The borrowers are not able to pursue higher studies. They become disinclined to start family life too. Most importantly, this giant called âstudent loan debt' affect the future life of the borrowers. This in turn makes a negative impact on the productivity of the nation.
Options to deal with student loan debt
It is difficult to erase student loan debt. Unlike the credit cards, you may not get rid of student loans through bankruptcy. Moreover, the federal government can take various steps to collect debt from you. The government can garnish your tax refunds and Social Security benefits.
If you're buried in student loan debt, then find out if you qualify for income based repayment plan. If you're a government employee, then you may qualify for student loan forgiveness. Find out the criteria and take steps to avoid meeting a financial disaster.