College Debt Defaults: New Statistics Point to Trouble Ahead

Barry Lenson

College Debt Defaults: New Statistics Point to Trouble Ahead

College Debt Defaults: New Statistics Point to Trouble Ahead  Over the last few years, we’ve been reading a lot of troubling, nearly hysterical news about college debt.  It’s been called “the next wave” and “the second bursting bubble,” meaning that when students start to default on their loans in greater numbers, the result will be a second mortgage crisis. Ka-boom.

Well, how bad is the college debt crisis exactly? If you want a realistic overview, a recent article in The Los Angeles Times delivers it. The article by Don Lee is entitled “Report on college loan delinquency rate raises alarms.” Here are some of the statistics it cites from the Federal Reserve Bank . . .

  • Overall, the outstanding American student loan balance is $870 billion. That's greater than the $693 billion that Americans owe on credit card debt or the $730 billion that Americans owe on car loans. Now that is a scary statistic. 
  • About 25% of all student borrowers are carrying past-due balances. 
  • Nearly 15% of all student borrowers - 5.4 million out of 37 million - have at least one past-due student loan account. 

Those statistics may even downplay the severity of the problem, because current students who have taken Federal loans don’t need to start repaying them until after they graduate. In other words, currently enrolled students who are taking big government loans without having any hope of repaying them are not included in those statistics.

The Los Angeles Times article includes some other troubling news too. It quotes W. Norton Grubb, a professor at UC Berkeley, who believes that rising debt levels are forcing students to drop out before they complete college. Only 40% to 50% of those enrolling at the California State University schools, he says, end up completing degrees.

So, do we really have a “ticking time bomb” in our hands now, waiting to upend an economy that is already in turmoil? Not if our president and our Congress put the proverbial “pedal to the metal” and do something to alleviate repayment problems for student borrowers. That will cost – dare we say it – money. But if government acts responsibly and in the right way, a second mortgage crisis might never materialize.

And oh, yes, we nearly forgot. American students might also get an economic break as they enter the workforce, start to spend and save, and do all the good things that working people do to contribute to the GNP and keep our economy humming.

We’re facing a big problem, for sure. But history has shown that the solutions for big problems are always found in big ideas. Dudes down in Washington, have you got any?

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