We saw this coming. Recent college grads, unable to gain employment, now with student debt coming due this fall, DEFAULT. This week the U.S. Department of Education posted information on student loan defaults from 2008. As this was simply the beginning of our current economic recession, we will most likely see the numbers worsen in the coming years. Nearly 240,000 students who had loans come due from 2007-2008 defaulted on their first payments (this number does not include borrowers who have defaulted well into their repayment schedule). Think about this. Many of the student loans that are not being paid back are federally funded; that means we as taxpayers are being owed money that is not being paid back. The default rate from 2008 was 7%. Students who graduated from a public four year university had a default rate of 6%, and those who graduated from a private four year university had a default rate of 4%. But, those students who graduated from for-profit schools had a default rate of 11.6%. 43% of total money in default came from students of for-profit colleges.
Recently I have advised students who are considering student loans to look at $40,000 total student debt after four years as a manageable number, in general. Those monthly payments (for 10 years) are tough, but manageable if they graduate on time and get a good job.
College is like a monopoly; everyone still wants to go, but prices continue to rise, even in a recession. A college degree is still very valuable, but students (and parents) need to be smart. Borrowers need to investigate the reputation of the college or university they are considering. They need to ask around, inquiring where recent grads took jobs. And students who have just exited college and fret over loan repayment should contact their lender to ask about loan consolidation, or deferrals, in the case of financial hardship. It's tough, but it's worth asking.
So, what do we see coming in another six months? Probably rising default rates of recent grads, more financial aid applications for incoming freshman, even more students delaying repayment by entering grad school, and a flood of current college students wrestling for on campus jobs.
News Video Link: http://www.azcentral.com/video/#/News/Student+loans/40280768001/35150280001/610107252001
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