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You’ve probably heard of the dangers of excessive student loans in your life and the lives of many Americans; but what exactly does it mean for our country’s economic future?  The Student loan fiasco and its mounting economic repercussions are huge pieces of the economic puzzle that need to be solved in order for our economic health and vitality to return.

Consider the following:
Our system operates under the requirement that a college education is mandatory for job security and career achievement.  Statistics report that college graduates are more successful, make more money and have a happier life.  The goal of attaining a college education has been made possible over the last 35 years with government backed student loans that can be repaid as soon as the student graduates, secures a good paying job and starts contributing back to the society that has supported him or her.  However, with the declining job pool and the increasing work force saddled with expensive student loans, the system isn’t working the way it was intended.  Many educators are concerned about the increasing financial squeeze on college students and their families as well as their repercussions on the nation’s economy.  Rising student debt force students to drop out early before completing their degrees.  This decline in the American scholar has become an Achilles’ heel in the competitive global economy.  Skyrocketing debts may be pushing some graduates into areas of work that have a bigger immediate payoff instead of working in the area that would have benefited them or society more in the long run.  

Statistics on Student Loan Debt
When you look at some of the key statistics surrounding student loan debt in the U.S., you can see the writing on the wall. 

  • In 1996, the average amount of debt accumulated by college graduates with student loans was $12,750. (Source: The Institute for College Access &; Success, TICAS)
  • In 2008, the average level of student loan debt among graduating seniors had risen to $23,200. (Source: TICAS)
  • In 2010, the debt load rose again to an average of $25,250. (Source: TICAS)
  • Between 1990 and 2010, the cost of tuition for a public four-year university rose by 116%, after inflation. (Source: Demos.org)
  • There is a huge gap between the steeply rising cost of tuition and mostly flat income levels. Between 1990 and 2010, as tuition rose by 116%, median household incomes in the U.S. only rose by 2.1%. (Source: Demos.org)
  • In June 2010, outstanding student loan debt overtook credit card debt in total dollars for the first time ever. (Source: Federal Reserve)
  • In 2012, the total amount of outstanding student loan debt in the U.S. passed the one-trillion-dollar mark. (Source: FinAid.org) Most of this debt is held by the federal government, by the way — not by private banks.

These numbers are significant on their own. But when you compare the rising cost of college to the mostly stagnant income-growth trends of the last 20 years, you begin to see the true depth of this problem.

Tuition hikes are outpacing income growth by leaps and bounds (116% as compared to 2.1%). Naturally, this leads to an increase in borrowing, and increasing the numbers of people caught up in the student loan maze with little or no way of getting out. 

Increased Reliance on Student Loans
As tuition continues to rise, so does the reliance on student loans as a primary source of funding. ; Since 2008, millions of Americans have lost income, equity and borrowing power. So the reliance on borrowing has risen sharply, and with it, the level of student loan debt.

Defaults and Delinquencies Are Rising
As the debt among college students rises, so does the number of defaults and delinquencies. A delinquency occurs when the graduate / borrower misses one or more loan payments. Default occurs when there is a prolonged delinquency. According to the Oklahoma College Assistance Program (OCAP): “[Default] usually happens when payment is at least 270 days late. Default can also occur for failure to submit on-time requests for a deferment or cancellation.”

In March 2011, the Institute for Higher Education Policy (IHEP) published a report entitled Delinquency, The Untold Story of Student Loan Borrowing. It was the result of a five-year study that looked at “more than 8.7 million borrowers with nearly 27.5 million loans who entered repayment between October 1, 2004 and September 30, 2009.” Among other findings, the authors determined that 41% of borrowers faced the negative consequences of delinquency or default.

Usually, it’s the default rate in particular that grabs headlines. But the less-serious delinquencies can also wreck a person’s credit. This study found that for every student who defaults (by missing several payments) there are at least two others who were delinquent but somehow avoided default.
A March 2012 report released by the Federal Reserve Bank of New York showed that 27% of student loan borrowers are behind in their payments. The bottom line is that both of these things, delinquency and default, can do serious harm to a person’s credit score.

How Debt Can Derail a Mortgage Loan
Debt can hurt you in several ways when trying to obtain a mortgage loan. It doesn’t matter if the debt comes from student loans, credit cards or auto financing. As far as mortgage lenders are concerned, it’s all debt. And too much of it can tip the scales against you.

Debt-to-Income Ratio (DTI)
In the wake of the housing crisis, mortgage lenders are paying a more attention to the debt-to-income (DTI) ratio. This ratio compares the amount of money a person earns, and the amount they spend each month to cover their debts. There are two types of DTI ratios. The front-end ratio includes only housing costs, which would be the future mortgage payment in this case. The back-end ratio combines housing debt with all other recurring debts. Mortgage lenders are most concerned with the back-end debt ratio, understandably.

The rising tide of student loan debt will create a generation of renters in the United States. Let’s call them Gen R.

So what can be done to stop this runaway train? How can this one aspect of the American economy potentially derail our economy?


Our current tax code is awarding mediocrity. 

Currently, student loan interest is deductible up to $2,500.00 per year.
When a student’s income exceeds $60,000 their loan interest becomes partially deductible. But when a student’s income exceeds $75,000 their loan interest is no longer deductible. We’re rewarding students for not earning a middle class income. Let’s level the playing field and simplify the tax code.
Make all student loan interest deductible up to $2,500.00 per year once the student graduates. For every year thereafter, increase the $2,500.00 by the inflation rate.

We now have a cottage industry of companies that finance students. They promise a student’s dreams will be fulfilled through college education, but they charge exorbitant interest rates and fees for those dreams. Often students owe interest on their loans as soon as they are approved or interest accrues until graduation, leaving the student with a massive debt to go with their new diploma. That may not be a concern for an engineering student or computer science major, but for every recipient of a Bachelor of Arts Degree in English with an emphasis on Russian Literature, there are few employment opportunities. ;
And a lack of jobs does not prevent an individual from owing on their loans. There’s no forgiveness. Student debt load cannot be discharged in Bankruptcy. This guarantees that the lender will be repaid at various interest rates over the former students’ lifetime. Ouch.

When I went to college, there was a guaranteed student loan program. While I was in college, I did not get charged interest. When I completed college I began to get charged a very low rate of interest and I started my repayment plan. Everyone should have equal treatment. No interest is charged until you exit the higher education program.

Lets’ stop this cottage industry from feeding empty and false promises to our youth.

No Interest while in School.
When you finish college, or you stop going to college, interest begins to be charged.
The interest rate changes annually and is always PRIME.
You start your note payment 6 months after you finish school or you stop going to college.
You may opt to repay the debt over 5, 10 or 15 years.
Economic changes demand adjustments to outdated economic policies. ; The Student Loan Issue is just one of the many areas that William Llop will revisit and revamp. COUNT ON IT!