Young, In Debt, and Falling Behind: The Plight of New Graduates
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.
What’s particularly disturbing is how much debt some students have as soon as they leave college. From The Journal:
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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