Parents and students should avoid the student loan sinkhole
We know an increasing number of people no longer can pay their mortgages, credit cards, or car loans. Now throw into the mix the rising number of student loan defaults.
The percentage of those loans in default grew to 6.7, up from 5.2 percent in 2006. This statistic didn’t get a lot of notice in most newspapers. But this trend is worth more than a paragraph. While the administration tries to find ways to fix the financial industry and health care, there has to be more focus on curtailing what has become for too many the crushing cost of getting an education. Without that education, many people won’t be able to get good-paying jobs.
Student loan defaults have been relatively low since hitting their peak of 22.4 percent in 1990. The rate dropped to a record low of 4.5 percent in 2003.
So things aren’t as bad as they once were, yet they’re still not as good as they should be. But the default rate tells just part of the story. With wages depressed along with the high cost of housing and health care, even those who can keep up with payments are stretching their education loans out for decades.
How bad is it? Go to StudentLoanJustice.org and read the stories of “victims’’ living under crushing student loans. Also go to www.defaultmovie.com and watch the poignant trailer from “Default: The Student Loan Documentary.’’ The feature-length film chronicles the stories of borrowers who, years after leaving school, are trying to repay loan balances that have ballooned.
For so many, the heavy borrowing is unsustainable, and there are a number of efforts underway to call attention to the student loan sinkhole. The RainbowPush Coalition, headed by the Rev. Jesse Jackson, has launched a “Reduce the Rate’’ campaign urging the Obama administration to allow people to borrow at extremely low rates.
Until there is a sustainable solution, there has to be a sea change in the view by many parents and students that college at any cost is worth the years of financial burden and perhaps ruin.
In a study of 1,400 undergraduate students and parents, lender Sallie Mae and Gallup found that 42 percent of families did not limit their search based on cost - even after reviewing financial aid.
Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, cautions: “If you borrow more than twice your expected starting salary, you will be at high risk of default.’’
Secretary of Education Arne Duncan said in releasing the default rates that the department is “reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new income-based repayment plan.’’ That program will give some borrowers a break. Under it, you may qualify for relief if your federal student loan debt is high relative to your income and family size. You may even be able to have the balance of your loans canceled.
Michelle Singletary is a columnist for The Washington Post. 
