Written by: Kidist Amanuel
The total student loan debt in United States has now surpassed a record high $1 trillion. Americans now owe more in student loan debtthan credit card and auto loan debt.
Some experts believe student loan debt will be the next big economic crisis in the United States. The recent recession forced a lot of people out of jobs and back in to school, increasing student matriculation, which when coupled with increase in tuition, has the nation looking straight at a looming student loan crisis. To be more competitive in the work force in this bad economy, students are now attending college in record numbers. Unfortunately, over the past two decades, the cost of attending public and private colleges has grown more rapidly than inflation, which has become less and less affordable for low- and middle-income families. According to the College Board, tuition and fees at public universities have surged almost 130% over the last 20 years.
A Federal Reserve Bank of New York study states that 30% of student loans have past due balance of thirty days or more. Students routinely defer payments on their loans by using grace periods or unemployment, which capitalizes their loans and adds billions of dollars to the total student loan annually. Many believe that increasing amount in the number of student loan defaults could be signaling a financial crisis.
On July 1, the interest rate break included in the College Cost Reduction and Access Act (CCRAA), which was passed in 2007, will expire. This is expected to double the federal loan interest rate from 3.4% to 6.8%. The increase would affect interest rates for subsidized Stafford loans for undergraduates issued after July 1, 2012. With students borrowing more money than ever to cover cost of college, this increase in interest rate is daunting for a graduate starting out with low income.
With many graduates struggling with unaffordable student loan payment, many experts have pointed out that it is important that people explore all their options and look for any possible alternatives before starting their education. Taking prerequisites at community college for the first two years before transferring to four year university or college is one example. There are programs that offer to pay tuition for services after graduation. Picking the right major is also critical in these bad economic times. It is important that students understand what jobs are available after they graduate and what income they should expect.
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