A college degree is fast becoming synonymous with student debt. More people are relying on loans to finance their studies as the price of attending school continues to outpace wage gains and economy rates.
The Great Recession delivered a record sum of school debt to Americans. Student loans are actually more popular than automotive loans, and home equity loans/lines of credit, credit cards. Approximately 40 million consumers have a minumum of one open student loan, with all the average balance, although mortgage debt remains the largest component of household debt
“Student loans are the only real credit vehicle in which a lender continues to extend credit year after year without understanding the man’s ability, or even willingness, to pay. The borrower may well not yet have had the chance to present favorable payment behaviors, which will be a standards found in other kinds of giving scenarios.”
They are able to still become a financial nightmare, while student loans could be a prudent investment for those who do their due diligence. The Federal Reserve’s latest report on family debt reveals that almost 11 percent of aggregate student loan debt is delinquent or in default at least ninety days. But this rate may be significantly underestimated as a result of various kinds of grace periods.
In the fine print, the Federal Reserve explains that, “Delinquency rates for student loans are likely to understate real delinquency rates because about half such particular loans are currently in deferment, in grace periods or in forbearance and for that reason temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.”
Making matters worse, its life cycle is being prolonged by student debt. Between 2005 and 2013, the total quantity of outstanding federal student debt among seniors 65 and older grew from $2.8 billion to $18.2 billion, according to the Government Accountability Office. From 2002 through 2013, the amount of individuals whose Social Security benefits were offset to pay student loan debt rose about five-fold from about 31,000 to 155,000.