WASHINGTON (CBSDC) — Millions of college graduates are already in the red as soon as they get into the “real world.”
According to a recent report from the Federal Reserve Bank of New York, outstanding student loan debt now stands at $870 billion, easily surpassing other forms of debt, including the $693 billion credit card debt and the $730 billion auto loan debt.
With student loan debt expected to rise, recent grads are looking for any job they can get their hands on, even if it means restricting their search in ways that may hinder future opportunities.
“[H]igh student-loan debt restricts the ability of graduates to invest not only their money but also their time to projects that promise to enhance their careers in the long-term; e.g., taking on a low-paying opportunity because of valuable experience it will provide down the road,” Dr. Thomas K. Lindsay, director for the Center for Higher Education at the Texas Public Policy Foundation, told CBSDC. “Instead, all of one’s energy and planning must be focused on the short-term in order to be able to pay back the student loans.”
While the job market still remains scarce across the U.S., it’s been tougher for recent graduates to get their careers off the ground. And this doesn’t help when it comes to pay back their student loans.
Over 40 percent of people under the age of 30 hold outstanding student loan debt, while 25 percent of people between the ages of 30 and 39 still need to pay back student loans. Data from New York’s Federal Reserve Bank shows that college graduates under 40 owe $580 billion.
As debt continues to accrue, people have turned to bankruptcy to deal with their money woes. However, while bankruptcy might be an option to help wipe away credit card debt, people are still held accountable to pay back their student loans.
“The National Association of Consumer Bankruptcy Attorneys recently filed a report saying that over 80 percent of the 860 bankruptcy lawyers they surveyed say that potential bankruptcy clients that have student loan debt has increased ‘somewhat’ or ‘significantly’ in the last 3-4 years,” Lindsay said. “[S]ince 2005, student-loan debt is usually not forgivable during bankruptcy proceedings.”
The average outstanding student loan balance per borrower is $23,300 getting out of school. Of the 37 million borrowers, more than 5 million of them have been delinquent in student loan payments, adding up to $85 billion, or roughly 10 percent of the total outstanding student loan debt.
“Skyrocketing tuition costs and rising student-loan debt both feed on and foster each other,” Lindsay told CBSDC. “Cleary, students need to borrow more in order to pay for higher tuitions.”
The Health Care and Education Reconciliation Act that was signed into law last year ended private lending of federally subsidized loans, approved expansion of Pell Grants and appropriated funds to invest in institutions that serve low-income populations.
With tuition in the country having risen four times faster than inflation in the past 25 years, Lindsay – who served as deputy chairman of the National Endowment for the Humanities — believes the private sector should be in charge of student lending, not the federal government.
“The most important thing that government can do is to recognize the role that it has played in creating this problem,” Lindsay said. “Therefore, all students, parents and taxpayers should be alarmed when they hear that the government is looking into becoming involved even more in order to ‘help’ with the debt problem. Adding more government to the student-loan debt crisis is akin to adding more gasoline to douse a fire of one’s own making.”
Advocates are still calling for more readily available student loans as state budget cutbacks could result in higher tuition rates.
President Obama has tried taking off the burden for college graduates. In October 2011, he announced executive actions to cap monthly federal student loan repayment at 10 percent of discretionary income for college graduates, easing it back from 15 percent.