Student debt has become a trillion dollar problem in 2014 but experts say those on the hook for massive amounts of debt aren’t all 20-something-year-old college graduates or dropouts.
“There is a growing number of borrowers who were older adults who returned to school to finish degrees or parents who took out loans for the children who are in the 50s and 60s,” said Eric Best, co-author of “The Student Loan Mess: Good Intentions Create a Trillion Dollar Problem.”
He said student loan debt is rising more than $100 billion every year. Best predicts student loan debt will reach $2 trillion by 2020 and it threatens to become the sequel to the mortgage meltdown. His research found that among recent college students who in payment mode, more than 33% are delinquent.
Best recently wrote an opt-ed piece for the Wall Street Journal that featured a former grad student whose $70,000 loan has ballooned into a $270,000 debt since she graduated in the mid 1990s. Like many, the student managed to defer, consolidate her loans and over time they compounded at quadruple the original debt.
Her teaching jobs garners her between $30,000 and $40,000 annually and she’s enrolled in more classes part-time toward a business degree to continue deferring the $1,200 per month she already owes in student loan debt.
Chris Lewis, 42, is still repaying student loans and she’s been working in journalism since graduating with a bachelor’s degree nearly 20 years ago. Lewis said she deferred the loans several years hoping to catch-up with a higher-paying job but that hasn’t happened. She said her consolidated payment is nearly $400 per month just $200 less than her mortgage.
With a teenage son approaching 17, Lewis is now worried about being able to help with his higher-ed costs and helping him avoid her mistakes.
Financial experts warn that deferring loans or defaulting can dramatically add to the balance. Defaulting or delinquencies can add between 16% to 20% to the loan balance if it goes into collections.
One out of every five direct student loans are not paid on time, according to the College Board. Standard payments are fixed at $50, graduated payments increase over time. Extended payments can be fixed or graduated. Other rules of repayment include:
• Income based payments cap at 15% of income;
• Pay as you earn options cap at 10% of income;
• The income contingent adjusts for up to 25 years; and
• Income sensitive adjusts over 10 years.
Students graduating today who almost all qualify for a pay-as-you-go plan are still defaulting some three years out of school at rate of 13.7%, said Best.
The Institute for College Access and Success recently reported that average student debt has topped $30,000 per graduate in three states this year and six others are not far behind. The average debt nationwide in 2013 was $28,400, TICAS said, up 3% from the year before. The organization found that 69% of the 2013 college graduates left school with some debt.
"It's getting harder and harder to graduate from college without debt," said TICAS President Lauren Asher.
She said more students are borrowing more to keep up with rising tuition costs, noting that it’s unsustainable.
Another study by the Pew Research Center notes that new college graduates have borrowed twice the amount of graduates 20 years ago. That research found that students from affluent families were not exempt from carrying student loan debt.
Similarly, Pew notes there has been a sharper increase in student borrowing among graduates with more highly educated parents. In the class of 2011-2012, 61% of students whose parents also had graduated from college left school with some student debt. This represented a 50% increase compared with students from similar backgrounds who graduated 20 years earlier. The increase in borrowing among students whose parents have less education was significantly smaller, although those students remain more likely to borrow.