First, the statistics: 12 million of the 20 million people who attend college each year, borrow annually to cover educational costs. The average amount of debt amongst all individuals who owe money for student loans in America is approximately $24,000. Collectively, all borrowers of student loans in the U.S. owe over $1 trillion, more than the total amount of national debt owed on credit cards.
All of these stats are figures quoted in reports by The Chronicle of Higher Education, The Boston Globe and Forbes magazine, respectively. All, unfortunately, are staggering numbers that are very much real.
Now, the reality: for better or worse, whether you cope fairly well with paying back your loans or not, you now form part, however small, of these post graduate statistics. If you are a newly graduated alumnus or alumna, there may be no greater time for a sense of heightened urgency than now when it comes to handling student debt.
If there’s any added perspective needed to gauge the gravity of the student debt picture in America, consider the significant rises that have occurred over the past few years.
The percentage of debtors who have struggled with repaying their students loans to the point that those same loans are delinquent, or three months past due, has risen from 12.4% to 15.1% in the past five years. Meanwhile, the crisis has been extended to parents, with borrowing having increased amongst them by 75% since 2006, all according to Forbes staff writer Halah Touryalai.
It’s an increasingly growing problem, the likes of which, at worst, can yield catastrophic results. At least, one financial expert believes so.
“Take it from those of us on the frontline of economic distress in America: This could very well be the next debt bomb for the U.S. economy,” said William E. Brewer, president of the National Association of Consumer Bankruptcy Attorneys, in a report produced by the same organization.
Brewer is not alone in asserting that the student debt crisis has recession-inducing potential, either, as Touryalai joins him in expressing concern that the next wave of college graduates could be in grave financial danger.
“Predicting the next financial crisis isn’t easy,” she says, “but there’s growing evidence that student loans will be involved in the next one.”
Drawing the link between student loans and the potential of the U.S. economy to be drawn into another collapse takes a simple connecting of the dots and a basic understanding of finance.
If graduates fail to pay back their loans, their credit takes a hit. Without good credit, consumers can’t make the type of investments (in the housing, automobile, retail industries and more) that strengthen an economy.
What’s more is that the work force is expected to be unkind to the most recent graduates of the class of 2013.
According to a report by CNBC senior editor Mark Koba, a study conducted by the National Association of Colleges and Employers projects that businesses will plan to hire only 2.1 percent of this year’s college graduates, a figure that differs from the 13% hiring rate quoted in a previous report.
And although the study surveys 500 managers, a relatively small sample size, the suggestion made is clear. Employers are in no rush to hire fresh-faced graduates.
For those keeping score at home, let’s recap.
You have 60% of the students who attend college annually borrowing money to cover costs. The average amount of debt that these students stack up is steadily rising with no stop in momentum coming in the foreseeable future. The unemployment rate amongst recent graduates is improving (from 9.4 percent amongst 2010 graduates to 6.3 percent amongst 2012 grads) but projections regarding the class of 2013’s chances of becoming employed are not favorable.
The percentage of borrowers with payments that are way past due is on the rise as while, while you and every borrowing graduate before, collectively, now owe over $1 trillion – that’s ten figures, by the way. Even your parents have been dragged into the whole mess, with numbers showing that their borrowing is on the rise to lend you a helping hand, which just may hamper their ability to help you financially in the future. While FICO describes the student loan situation in the U.S. as “unsustainable.” (FICO rates your credit scores, by the way.)
So, what, you may ask, does all this mean and how should you react?
For starters, there’s no reason to feel guilty. You took out loans to cover education costs over the past few years not a frivolously spent lifestyle in Vegas.
Secondly, don’t feel frightened, not that you shouldn’t be, but you literally have no time for fear.
The fate of your country’s economy actually, not hypothetically, rests in your hands. So it’s time to put those hands to use.
Be diligent. Know your stuff. Find out how much you owe and the type of payments you’ll have to make. Federal loans are meant to be fully repaid in ten years. Perkins loans allow for a period of nine months after graduation before it’s time to reach down your pockets, but most loans only allow for six months.
Regardless, you have a grace period, use it wisely. Send out résumés in droves. This is desperation time. And check that résumé until you can bet your life on its validity. Forty-three percent of managers surveyed in the aforementioned study say that spelling errors in résumés automatically disqualify candidates from being hired for the very jobs that can get them out of det.
Don’t wait until the latter months to nab a job, either. As Touryalai says, “The ugly surprise after graduation day is that entry-level salaries are often no match for massive monthly student loan payments, or worse, there’s no job available by the time the first payment comes due.” Even with a job, there’s no guarantee that things will go swimmingly with your repayment endeavors.
Everything’s not all bad, however. You have a college degree, which qualifies you as an accomplished individual, but just for the moment. What you do from here on and how you deal with toxic student debt will determine how long your status as a success will last.
Photo Via: The Salon, Tumblr