“I used to joke when I was in college that I’d be paying off these loans for the rest of my life,” says Angello, 22. She graduated nearly a year ago from Ithaca College, where she majored in communications. “Little did I realize that I actually will be.”
Angello is on the hook for about $120,000. (HuffPo, “Newly Graduated And Drowning In Six Figures Of Student Loan Debt“)
Since 1986, the cost of everything has increased by about 107.05%. At the same time, college tuition has increased 466.80% and by 2015 some estimates put the cost of attending just a normal, run of the mill, state college at over $120,000 per year (source: Gordon H. Wadsworth, “Sky Rocketing College Costs”).
Collage is now so expensive that most students & their parents can’t pay for it without borrowing the money. And the tuition inflation trends are grim:
This isn’t just a loan or payback crisis. It’s becoming a “how are we going to educate ourselves” crisis.
The rational calculation parents and students make is that their future earnings will make their college debt to income ratio reasonable. This is called ROI, or return on investment. However, with the rapidly rising cost of college coupled with a seemingly never ending sluggish economy recession, more and more ex-students are awaking to the rude discovery that they may never be able to pay off their student loan.
It Gets Worse
In 1998 & again in 2005, Congress passed new bankruptcy regulations that basically turned you into an indentured servant to your student loan: it would be easier for you to flap your arms and fly around your room than for you to write off your student loans through bankruptcy.
The reality today is that an increasing number of students, in this economy, simply can’t meet their monthly student loan payback amount and so more and more are simply not paying. If they qualify for an un- or under-employment deferment, then they are spared from paying interest and penalties, for a while anyway.
However, if they go into forbearance (because they don’t qualify for a deferment), their student loan interest continues to compound. As the interest compounds, the principle grows, and then the interest grows some more and that spells “crisis” in anyone’s book. Currently there’s talk of a moratorium on interest compounding on student loans in forbearance, but so far, it’s just talk.
It Gets Better
Last year (July 1, 2010) Congress instituted changes to the existing Income-Based Repayment plan offered by most lenders. The biggest change was that all student loans not fully paid off within 25 years (10 years if you work of a non-profit or government organization), the remaining principle is forgiven (i.e., written off by the lender).
Those potentially big monthly payments? That’s still your problem.
For help, or least a shoulder to cry on, check out The Project on Student Debt.