College 101
Why Student Loan Debt Is Terrifying
(Source)
You remember that time you borrowed Super Smash Bros from your friend, Robert, and then you accidentally lost it? The student loan debt crisis is a little like that: you don't mean to get yourself into hot water by borrowing something you can't give back, but, welp, here you are. And now everyone's upset, and ultimately, the grown-ups have to get involved.
There's over a trillion dollars of outstanding student loan debt today (source). Yes, a trillion.
If you think that's a big number, you're right. It's the second biggest type of consumer debt, second only to mortgages. And unlike mortgages, student loan debt can't be removed by bankruptcy. Or witchcraft, for that matter.
Plus, it's estimated that 24% of jobs will require a bachelor's degree by 2020 (source), which means that many of you will have to go to college. It's not a choice for some of you. So, student loans and the debt that results from them aren't going away any time soon.
You might be wondering, "What's the big commotion? You take out loans and then you pay them off. We've solved the whole crisis before lunchtime."
Not so fast. 10% of debt holders have $40,000 in student loans while 1% have over $100,000 in loans (source). The median household income, by comparison, is only around $53,000 per year (source). As a result, there's a serious disparity between what loan holders are expected to pay versus what they're capable of paying. Student loan payments become like that copy of Super Smash Bros.; all the good intentions in the world can't produce it.
Unsurprisingly, delinquency rates have sky rocketed to 15% and deferral rates, which are not traditionally reported, could be even higher (source).
Default is becoming a real danger for many loan holders, which may make a bad financial situation even worse. We're talking giant monster rampaging through town bad. This is usually the part where we start talking about the solution, but no one quite knows what that solution should look like. Loan forgiveness is one controversial option, while others suggest that the federal government should be more careful about awarding loans to every Joe and Jill Shmoe out there.
A simpler fix, in our humble opinions, is for high schools and colleges to offer more extensive student loan counseling. The vast majority of students are opting for standard 10-year repayment plans on their loans (source) even when that plan doesn't suit their specific financial needs. It's likely that with better counseling, they would choose more flexible repayment plans and reduce their risk of default.
Student loan counseling is like having a friend with you at the mall to make sure that you don't end up buying that awful jacket. The one with the fringe.
In a 2012 survey, 40% of respondents said that they didn't remember getting loan counseling (source), though it's federally mandated.
Even if no one can stop or slow the rate of students taking out loans in the U.S., we can at least do a better job of making sure that people know what they're getting into. If you had known all the trouble it would eventually cause, you probably would have just bought your own copy of Smash Bros., right? (Sorry, we're apparently a little obsessed with our own metaphor. But you forgive us, right? Even if we don't forgive your loans? Ba-dum-tsh.)