It’s a first for the folks who keep track of financial statistics in this country and this latest one, while shocking, isn’t too surprising. We were warned it was just a matter of time. For the first time ever, American consumers have allowed more student loan balances fall into delinquency than their credit cards. The Federal Reserve Bank of New York released its report earlier this week and in it, are the cold hard facts that more than 11 percent of the nation’s $956 billion in student loans have gone unpaid for longer than three months. Meanwhile, our credit card delinquencies have been decreasing. But now, many are wondering how long that trend, minimal though it may be, can last; especially considering the unresolved fiscal cliff that we will supposedly fall off of in exactly one week.
Bloomberg Business Week also outlines the details and says guaranteed student loans and rising education costs have resulted in massive debt levels among those groups of Americans least likely to repay the loans. And in another new fact, and again, it’s not surprising, but it is alarming – college dropout are four times more likely to default on their student loans than their counterparts who graduate college with a degree. The report takes into consideration current economic factors, including the still-difficult employment situation.
Some graduates who participated in the survey said they feel their student loans are now “illegitimate” because they’re leaving college with no sign of the American dream to be found. The fact there are no jobs at all – much less jobs in their chosen careers – adds to their frustration. Many are moving back in with Mom and Dad and along with their student loans they can now not pay, they also have credit card debt. The 2009 CARD Act put guidelines in place that prevents anyone under the age of 21 to secure a credit card without a cosigner or proof of repayment. Many, though, had already begun racking up that revolving credit before the law went into effect.
At the same time, the federal government continues to back these financial products, which are now being referred to as “risky student loans”. Banks are bowing out of these products, which leaves the only source of financing the government. The entire economic sector is already beginning to recede in terms of what’s being offered to consumers. The dynamics are in place for another recession and as a result, we can expect to see even more conservative moves being made by banks and credit card companies.
It’s important to keep in mind, too, that these numbers aren’t indicative of student loans that haven’t entered into the “collectable” phase. Many have grace periods that don’t kick in until after graduation. This, says the Federal Reserve Bank, means the actual numbers are around 20% delinquent.
Some college students have considered bankruptcy, though many are surprised to learn student loans aren’t dischargeable. Instead, they simply file bankruptcy on their credit card debt and hope for the best when it comes to their student loans. These young adults, instead of preparing for a successful future, are moving forward with significant credit problems before they’ve even found a job.
2010 was the first time in history that the total amount borrowed in student loans surpassed the $100 billion mark. Those numbers were rising fast then and even faster today. We’re long since surpassed the $1 trillion mark. You might be surprised to learn, too, that the figure continues to grow to the tune of almost $60 billion each month. It’s also true that the delinquency rate is rapidly approaching the 30% mark.
As mentioned, the employment outlook is bleak for these young adults. These college graduates are struggling with a job market that only 46% of the nation’s 18-24 year olds are employed. It hasn’t been this low since 1948, when the government began keeping up with the numbers. They can’t secure loans because they don’t have jobs established. Many are turning to Mom and Dad, which can sometimes add a burden to their shoulders, something no college graduate wants to live with. Everyone agrees something must change, no one knows what that “something” is and so the cycle continues.
If you’re wondering what the solutions are, you’re not alone. These are the kinds of problems that shape entire generations. Whether it’s a combination of credit card debt and student loan debt or if it’s the lack of jobs, these contemporary adults are wondering where their American dream is.
So what are your thoughts? Has the American dream changed or do we simply need to rethink our financial decisions? What do you think the new year will bring for these young people who are ready to move forward but are struggling to break free?