Student Loan Debt
Student debt is a form of debt that is owed by an attending, formerly withdrawn, or graduated student to a lending institution, or to a financial institution. The lent amount, often referred to as a student loan or the debts may be owed to the school (or the bank) if the student has dropped classes and withdrawn from the school. Withdrawing from a school, especially if a low (or no-income student) has withdrawn with a failing grade, could deprive the student of the ability of further attendance by disqualifying the student of necessary financial aid. Student loans also differ in many countries in the strict laws regulating renegotiating and bankruptcy. Due payments may be a retroactive penalty for services rendered by the school to the individual, including room and board.
As with most other types of debt, student debt may be considered defaulted after a given period of non-response to requests by the school or the lender for information, payment or negotiation. At that point, the debt is turned over to a Student Loan Guarantor or a collection agency. (Wikipedia)
“This issue is at a crisis level in America today. Currently nearly anyone in America can obtain a government guaranteed ‘student loan’ and attend the learning institution of their choice. They may use these funds to try and achieve any type of education they wish…useful in life or not. That does not really matter as long as the debt is paid back. But the default rate for paying these debts back are alarmingly high!”
The US “Student Loan Mess”
In The Student Loan Mess: How Good Intentions Created a Trillion-Dollar Problem (2014), authors Joel and Eric Best identified four overlapping periods of crisis related to US student loans. The periods are (1) 1958-1972 with the first federal student loans and the creation of Sallie Mae, (2) Mid-1960s-1978 with high rates of default to the near impossibility of student loan discharge in bankruptcy, (3) Mid-1990s-present and “crushing debt”, and (4) 2012-the present with widespread economic damage. (Wikipedia)
“This issue must be addressed before it get much worse. The solution will not be easy and perhaps not too popular either but it MUST be addressed immediately!”
Student loan debt rose from $480.1 billion (3.5% GDP) in Q1 2006
to $1,397.3 billion (7.5% GDP) in Q3 2016.
Distribution of student loan debt in the U.S.
See also: Student loans in the United States
There are two types of loans students borrow in the US: Federal loans and Private loans. Federal loans have a fixed interest rate, usually lower than private loans’ interest, set annually by the congress. The direct subsidized loan with the maximum amount of $5,500 has an interest rate of 4.45%, while the direct plus loan with the maximum amount of $20,500 has an interest rate of 7%. As for private loans, there are more options like fixed interest rate, variable interest rate, and income based monthly plans whose interest rates vary depending on the lender, credit history and cosigners. The average interest rate for a private loan in 2017 was 9.66%. The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion with over 7 million debtors in default. In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172. As of 2018, outstanding student loan debt totals 1.5 trillion.
The interest rates are a major factor in the alarming debt numbers, however, the booming of prices of college is a contributing problem to this issue.