Student loan debt in the United States is out of control and has become a national crisis! Unfortunately, it’s a crisis that few people want to talk about. People would rather discuss building a wall to keep out migrants looking for work instead of focusing on what has become the biggest threat to young people and achievement of the American dream. While national security is important, financial security should not be forgotten.
Student loan debt is not something that you can walk away from an ignore. No matter how long a borrower goes without paying a federal student loan, it will never go away.
Discharging A Student Loan Debt By Bankruptcy Is Difficult
Thanks to Bankruptcy Abuse Prevention and Consumer Protection Act passed by Congress in 2005, both federal and private student loans are more difficult to discharge in bankruptcy than other types of debt. However, they can still be discharged if the borrower can prove the loan causes undue hardship. You have to pass the Brunner test. The test has three features, and you must satisfy each one and prove that:
1. You cannot maintain a minimal standard of living for yourself and your dependents based on your current income and expenses.
2. Your financial situation is not likely to change during the term of your loan.
3. You have made good faith efforts to repay the loan.
If you can satisfy each of the three test, then your student loan may be dischargeable. But proving each one of these test will not be easy, particularly if you have a federal student loan debt. The bottom line is this, for most people bankruptcy is simply not an option.
What Are Th Consequences For Defaulting On A Student Loan?
When past due payments become more than 270 days late, the loan is officially “in default.” When this happens, the financial institution responsible for collecting payment will turn your case over to a collection agency. Debt collectors will tack on fees to cover the cost of collecting the money.
The federal government has even more power. The government has the power to seize your tax refund, garnish your paycheck, social security, and even disability benefits. The government has also been known to sue borrowers. The Department of Justice reports that over 3,300 student loan borrowers have been sued for defaulting.
How Big Is The Problem?
Student loan debt is now the second highest consumer debt category in America. Student loan debt is behind mortgage debt but is higher than both credit card debt and auto loans.
According to Make Lemonade, there are more than 44 million borrowers, roughly 14 percent of the population, who collectively owe $1.5 trillion in student loan debt in the United States alone. The average student in the Class of 2016 has $37,172 in student loan debt.
Student Loan Statistics Overview
Total Student Loan Debt: $1.52 trillion
Total U.S. Borrowers With Student Loan Debt: 44.2 million
Student Loan Delinquency or Default Rate (more than 90 days late): 10.7%
Total Increase In Student Loan Debt In Most Recent Quarter: $29 billion
States With The Biggest Deliquency
It should not come as a surprise that the states with the largest student loan delinquency are the states with the highest population. California, New York, Texas, and Florida have the unfortunate distinction of being among the four highest states with the highest student loan debt outstanding.
California, New York, Texas, and Florida represent more than 20% of all U.S. student loan borrowers.
Demographic Group With The Highest Delinquency
For blacks, the default rate has become even more of a crisis. The wealth gap between African Americans and whites in is very pronounced. The increase in lifetime income and wages that generally come with obtaining a college degree was thought to be one of the strongest mechanisms for closing the gap. After studying the default rate data, this assumption may have to be revisited. A college degree does not guaranty a job that pays a high salary.
According to a report released in October 2017 by the U.S. Department of Education’s National Center for Education Statistics, there is a troubling picture for black students who take out loans. The Department looked at student loan repayment patterns for two groups of borrowers who first enrolled in college in 1995-1996 and in 2003-2004.
The report reflects that nearly half (49%) of black borrowers in the 2004 group defaulted on at least one loan within 12 years. That default rate was more than twice the rate for white students (20%) and more than four times the rate for Asian students (11%).
The federal data show that the typical black student who enrolled in 2004 and took out student loan debt for an undergraduate education owed more on their student loan debt after 12 years than the amount originally borrowed. This is compound interest working against you. The interest keeps accruing.
Overall Delinquency Figures
The delinquency figures for black borrowers is very troubling, but the overall figures including Whites, Asians, and Hispanics is also quite high at 29%.
Death Of The American Dream
The $1.5 trillion in student loan debt coupled with the high default rate is killing the American dream for many people. Once a student graduates, not only must the student begin repaying the student loan money they borrowed, they are expected to fully pay 100% for their living expenses, accommodation, and travel costs.
In times past, college was affordable. A student could work their way through college with a summer or part-time job. Now, without a scholarship, this is nearly impossible. A student must take out a private or federal loan in order to pay for school. In most cases, student loan debt is the person’s highest expense – exceeding both credit card and auto debt.
The overall debt burden is causing many borrowers to have to live at home with Mom and Dad longer, causing them to delay marriage and starting a family.
Instead of saving money for the down payment on a home, many people find themselves using the money they should have been saving to make, what seems to be, never ending student loan payments. Unfortunately, as reflected in the study above, too many others end up defaulting thereby decreasing the odds that they will ever own a home.