Monday, April 27, 2009

Increasing Student Debt of College Graduates

In a recent NY Times article by Tara Siegel Berhard titled "In Grim Job Market, Student Loans Are a Costly Burden", we read about the increasing burden college students are taking on as they attempt to fund their college tuition. The most recent default rate on federal loans was 6.9 percent, the highest rate since 1998, according to preliminary data from the Education Department. But this statistic illustrates only a piece of the picture. It tracks only the students who started to repay their loans between October 2006 and Sept. 30, 2007, but who had defaulted by September 2008. And it doesn’t include loans in deferment or forbearance even though those borrowers are unable to make payments. Nor does it include loans not backed by the government. Perhaps seduced by the idea of graduating from a well-respected university, many students tend to overlook the consequences of graduating with debts that are likely to far exceed their starting salaries. And as many borrowers have learned, student loans are among the most ironclad debts, on par with child support, alimony and overdue taxes. They stick with you no matter what. Another factor adding to the troubling financial load of recent college graduates is the fairly high amount of consumer debt (a.k.a. credit card debt) that students leave college with these days. The average credit card debt owed by college students is about $2,700, with close to a quarter of students owing more than $3,000. About 10 percent owed more than $7,000. The picture is somewhat sobering but it is often best to discuss these issues with your children as graduation from high school approaches and college decisions either have been made or will be made shortly.