Wednesday, February 6, 2013

America’s March Towards Overwhelming College Students With Debt Takes a Giant Step Forward

Is Indentured Servitude or Debtor’s Prison in the Future?

Decades from now historians and social scientists will look back at the way college finances were set up in the late 20th/early 21st centuries and wonder just how a supposedly benign people could do something so cruel to its young people.  Basically what has happened is

  1. A college education is a near necessity for economic advancement for the middle class and the wanna be middle class.
  2. State governments have consistently cut back support for higher education to keep taxes low.
  3. Productivity associated with higher education has plummeted as the schools add administrative costs along with less work time for the senior faculty.
  4. Tuition and fees, particularly fees rise far faster than inflation.
  5. The Federal government, instead of helping,  provides student loans to accommodate the higher costs, thus allowing colleges to raise costs even faster.

So much of the entire student body leaves school with a massive amount of debt.  Debt that they cannot pay.

When their student loans come due, many borrowers have no choice but to postpone the inevitable. As of March, 51% of student loans were in deferment or forbearance — periods when, owing to financial hardship, borrowers are not required to make payments — up from 44.3% a year prior, according to a study released today by credit bureau TransUnion. (These figures include deferments for students who are still in school.) And the amount they’ve postponed paying jumped 70% to $388 billion from March 2007 to March 2012.

So this deferment thing, does that help.  Well maybe, maybe not.

Borrowers encounter several problems when they come out of long periods of deferment or forbearance. With the exception of subsidized federal loans, interest on student loans continues to accrue during these periods, so that when borrowers do eventually start repaying their loans, they’ll be facing a bigger balance than when they entered into these programs. Also, delaying repayment for a longer period increases the chances that they’ll carry this debt later on into life. That’s partly why the number of people ages 40 to 49 still repaying their student loans totaled 5.7 million during the first quarter of 2012, according to the latest data from the Federal Reserve Bank of New York. That’s up from 3.3 million seven years prior.

So now 40-49 year olds have huge student debts.  Soon it will be 50-59 year olds.  And after that expect the following notices in the Obituaries

Charlie Jones, aged 93 died last night.  He is survived by his wife of 47 years Shelia Jones, three children, six grandchildren and his student loan of $54,000.

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