Our national debt is growing at a phenomenal rate. We are already at $1.2 trillion and counting. Time doesn’t seem to be solving the issue. Every year, the issue as a whole appears to be getting worse and worse. The graduating class of 2014 has an average debt of over $33,000. The 2015 numbers haven’t been calculated yet.
Why is this happening? What’s going on that’s making the most powerful nation on earth fumble like this? Let’s find out, shall we?
1. Defaults Are at an All-Time High
Over 10 percent of student loans are delinquent on a national level. That’s not even the worst part of the problem. People are graduating college with over $30,000 in debt into jobs that don’t pay them anything more than $30,000 a year. How are they supposed to pay back that much debt on that kind of income?
Granted, some of it may be due to the for-profit colleges. Now, that’s a topic for another day. What’s interesting to note is that even those who have legitimate jobs and degrees, such as school teachers and nurses, are finding themselves in the same situation. It costs all lot to get that kind of education yet, the industry salaries don’t match.
2. The Political Solutions Are Nothing More Than Band-Aids
The majority of this is federal debt. A political storm is brewing. Honestly, it’s inevitable if you consider the amount of people that are defaulting on their loans and how much money is being defaulted.
There are government and political programs that offer student loan forgiveness. However, they require a whopping 20 to 25 years of perfect, on-time payments in full. In its defense, these are income-based repayment programs where you’re not required to pay more than 10 percent to 15 percent of your disposable income.
The long-term dangers are what’s dangerous. There’s no incentive to cut costs at this rate.
3. The People Who Can Pay Are Leaving the Program Altogether
It is nice to see that the private sector is trying to fix the issue. Credit unions, banks, and even startup companies can clearly see the skyrocketing interest rates. Their answer is to find the people who can pay – the best borrowers – and allow them to completely refinance their loan. Right now, there are about 19 different lenders who are willing to refinance student loans at interest rates as low as 1.9 percent APR.
A Credit Bubble Is on Its Way
The political storm hasn’t hit yet. Loans are still being issued. However, it’s a dangerous combination. As more and more people default on their student loans, a bubble is being created.
Political programs will continue to offer higher levels of student loan forgiveness.
Private banks will continue to attract the best borrowers.
When it all goes down, the taxpayers will be left to clean up the mess.
It’s not all hopeless. High schoolers need to be more educated on what type of loans to take out before they sign the papers. Politicians need to realize that every time they put a Band-Aid on it, they’re just prolonging the inevitable.
Mounting debt isn’t fun. In fact, it can be downright scary. Don’t worry! We’re here to help you get a grip on your student loans and give you the best possible solution for your situation! Talk to us – we’re waiting to hear from you!