Unemployment Raises Student Debt Default Rates

According to the U.S. Department of Education, and based on a review of President Obama’s 2011 projected budget, there was more than $605.5 billion dollars in outstanding student debt at the end of the last quarter of 2009. Projections estimate an increase of around $67 billion more in student loans for 2010, and an additional $73 billion in 2011, which will bring the outstanding total of all uncollected student debt to $745.5 billion dollars. The current total of outstanding student loans in default is between $40-45 billion dollars when interest, principal and late fees are taken into account, but the real story is the future outlook of these student debts in relation to the current economic crisis.

When you consider that the current student debt default rate continually hovers around the 8% mark, you have to ask yourself how the state of the economy, and the unemployment situation in the U.S. may impact that figure in the coming months and years.

According to the National Association of Colleges and Employers only 19.7% of all college graduates received job offers at graduation last year. That figure is up by an additional 4.7% for 2010 graduates, but that still leaves a large portion of the 1.5 million college graduates of four year degree programs from last year who never got job offers wondering how to pay those student debts they have accumulated. Add the balance of the graduates who didn’t get job offers this year, and you have an increasing pool of applicants all applying for the same jobs.

It doesn’t take a rocket scientist to realize that as the pool gets larger the chance of actually landing the job begins to decrease, especially with most companies continuing the trend of downsizing to offset the decrease in revenue due to poor economic performance. So where does that leave the thousands of unemployed graduates with mounting student debt they cannot pay? Many are asking themselves that very question.

There are programs that can help recent graduates to either consolidate, or defer their student debt. The best resource that I found which answers these questions in the highest degree of detail was the website finaid.org but most banks and lending organizations that hold the actual loans should also be able to explain these programs to students. The one piece of advice that seems to resonate with everyone involved is that you should not ignore the debt as it will not go away. Federal guaranteed student loans cannot be discharged in bankruptcy, and failure to diligently pay these obligations can ruin a brand new graduate’s credit rating; making a bad situation even worse.

Posted by Don on Jun 30 2010. Filed under Featured News, Finance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.