Katie LaPotin, Red Alert Politics, January 30, 2013
As if the pressure of graduating from a top-tier college isn’t enough to find success in today’s weak economy, more recent college graduates than ever are defaulting on their loans after graduation.
A new report by FICO Labs, a unit of Fair Isaac Corp., found that the student loan delinquency rate has risen to 15 percent over the past three years – a 22 percent increase from its previous high in 2005-2007. Fair Issac Corp. publishes consumer credit scores and helps banks decide if an individual is qualified for a loan and what level interest rate they may be qualified for.
Discussing the report, FICO Labs Head Andrew Jennings commented that,“This situation is simply unsustainable and we’re already suffering the consequences. When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for people to continue taking out ever-larger student loans without greatly increasing the risk of default. There is no way around that harsh reality.”
Part of the problem is that college students today are applying for larger loans than ever before. In 2011, the average student left college with nearly $27,000 in debt, an increase of $10,000 over the past eight years.
“As more people default on their student loans, their credit ratings will drop, making it harder for them to access new credit and help grow the economy,” Jennings continued. “Even people who stay current on their student loans are dealing with very large debts, which reduces the money they have available to spend elsewhere.”
With college costs climbing faster than the rate of inflation over the past four decades, education debt has swelled to $1 trillion, more than what Americans owe on their credit cards. According to a report by the Consumer Financial Protection Bureau, total educational debt in the United States has risen to more than $1 trillion – more than what Americans owe on their credit cards.
More troublesome is the fact that these numbers only include loans borrowed over the past three years, as it is likely to get worse as the job market remains poor for college graduates over the next few years. According to the Consumer Financial Protection Bureau, student loans are the largest source of unsecured consumer debt in the U.S., and many financial analysts are worried about a possible loan bubble as a result of the rise in unpaid loans.