rssYoung, In Debt, and Falling Behind: The Plight of New Graduates
Tuesday, April 21, 2009 at 9:42 am
- 12 Comments
It should be no surprise that the weak economy is making it especially tough for new college graduates trying to find jobs. But huge student loan debts are adding to their dilemma — the payments don’t go away just because the job market is tough.
The Wall Street Journal reports today that student loan defaults are soaring to their highest rates in over a decade:
According to new numbers from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That’s up from 4.6% two years earlier and would be the highest rate since 1998.
The situation is mirrored in the smaller private student-loan market. In 2008, SLM Corp. also known as Sallie Mae, wrote off 3.4% of its private loans that were already considered troubled, according to its latest annual report — more than double the figure in 2006. Student Loan Corp., a unit of Citigroup Inc., wrote off 2.3% of those loans in 2008, compared with 1.5% a year earlier.
“The volume of people in trouble is definitely increasing,” says Deanne Loonin, a staff attorney at the Boston-based National Consumer Law Center who counsels low-income consumers on student loans and other debt issues.
Sarah Kostecki, a 24-year-old sales associate in New York, graduated last year from DePaul University with a major in international studies and $87,000 in debt, translating to monthly payments of $685, the vast majority of which are private loans.
The payments represent more than a third of her take-home pay, and to help her make ends meet, her grandparents are giving her $200 a month toward her debt this year. Beginning in January, she’ll be on her own, and she worries about falling behind.
“It feels like I’m being punished for having gone to school,” Ms. Kostecki says. She has contemplated some of the options offered by private loan companies, such as temporary interest-only payments. But after two years, her payments would jump by almost $200 a month on top of what she’s paying now, she says. “I don’t want that.”
Owing nearly $700 a month as soon as you graduate is insane. No wonder some new graduates feel like they are drowning in a mountain of debt. The options for those who can’t pay right now aren’t that great, either, because the interest on their loans keeps growing and they’ll just face higher payments in the future.
The problem, of course, is rising college costs. If they aren’t brought under control soon, only the wealthy will graduate without facing mountains of debt. That situation could discourage some high school graduates from even trying to pursue a college degree. And that would be a tragedy.
One of this country’s greatest strengths is its higher education system, which traditionally has been open to everyone, regardless of income. But tuition costs, combined with the credit crunch, are threatening the entire system. States don’t have the money these days to help keep tuition down at public universities. Graduates with mountains of debt can’t easily refinance. Private loans are expensive and hard to come by. Rising default rates are just the start of what is becoming yet another crisis, one that will hit families with big dreams of higher education for their kids especially hard.
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12 Comments
Comment posted April 21, 2009 @ 7:26 am
“The problem, of course, is rising college costs.”
Rising college costs are the effect – the cause is the massive amount of federal aid in the system. Would colleges keep rising costs at 7% per year if their consumers could no longer afford to pay? Most 18-year-olds just sign that “master promissory note” knowing that it's free money they won't have to pay back for at least 4 years.
If we are serious about the federal government to continue to back student loans, the feds also need to start putting some regulations on the schools that receive the aid. Inflation up 2% this year? Fine. That's the new cap on tuition increases.
Comment posted April 21, 2009 @ 8:51 am
I saw this referenced at http://www.GreaterDepression.com and think that this is the tip of the tip of the iceberg. Home loans are frozen so people are using plastic for now. Wait til Visa realizes just how little of the outstanding balances they will actually see.
Comment posted April 21, 2009 @ 9:36 am
I knew this was coming, people who could have retired now, can't, they have lost 1/2 of their retirement savings due to the housing crisis of which Barney Frank did not know about, even though he had been warned several times about the sub-prime mortgages. . The economy is trashed, so many people unemployed, yet our Government passes an 810 stimulus bill, they did not read that was full of pork, that will create little simulus and even fewer jobs. Ridiculous
I really hope that this crisis wakes up all those college students who blindly vote for candidates with no to little research on the candidates they are voting for..
Comment posted April 21, 2009 @ 10:55 am
That wasn't even the worst example though. They had that guy who had $150k in student loans for graphic design??!!
Comment posted April 21, 2009 @ 11:33 am
Blaming Barney Frank and whinging about subprime mortgages now is just ignorant to the point of funny if it weren't so sad. The prime mortgages far outnumber the subprime or CARA mandated loan failures, Barney Frank has repeatedly slammed the lying weasels who put the blame on him when the real crooks were the corrupt GOP prostitutes who did everything Big Business asked with no question. Anybody that ignorant or partisan certainly won't understand arguments about the stimulus bill and will probably try to blame it on “teh gays” or “teh libralz” when the real problem is their own political myopia and corruption.
Comment posted April 21, 2009 @ 10:50 pm
There is really no reason for this to be happening. Anyone with college loans through a private bank can consolidate those loans with the federal government or Federal Direct Loans (https://www.dlssonline.com/borrower/BorrowerWel…). You can choose from a variety of payment plans that even include an income contingent option. There are, as with everything, plusses and minuses with each option. Expect more changes on the way to make it easier for students to manage their debt. We now have an administration that understands the value of education.
Comment posted April 30, 2009 @ 11:01 am
Just wait until you pay for this social engineering project
Comment posted April 30, 2009 @ 12:46 pm
your wrong DICK.Franks chubby ass is a coulprit.Its hard to 100% prove anything when it comes to washington.
Comment posted April 30, 2009 @ 6:01 pm
Just wait until you pay for this social engineering project
Comment posted April 30, 2009 @ 7:46 pm
your wrong DICK.Franks chubby ass is a coulprit.Its hard to 100% prove anything when it comes to washington.
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