America reached an ominous milestone last year. For the first time in history, U.S. student college debt exceeded credit card debt. According to the Project on Student Debt, a nonprofit research center, college and graduate students are adding education debt at the rate of $2,853.88 per second, which means they will reach the $1 trillion mark sometime next year.
These figures alone don't reveal the full significance of this crisis: thousands of graduates are saddled with debt they can't afford to pay without making choices about which necessities to forgo. Student default rates have doubled since 2005, according to the U.S. Department of Education, and represent another potential landline threatening the economy.
To more sharply define the issue, in 2009, the average college student graduated with an education loan debt of $24,000, up 6% over the prior year. Debt loads for graduates of private colleges are higher, and it's not unusual for college graduates to leave school with more than $100,000 in debt and monthly payments of $700 or more. For many recent graduates, the weak economy means they are either unemployed or underemployed and unable to keep up with even minimal payments.
For graduates with large amounts of private loan debt, there is little they can do - the law makes it extremely difficult to discharge educational debt via bankruptcy. Debt consolidation - one avenue previously open - has since been severely limited by the decrease in the number of banks willing to extend private loans. At best, holders of private loans can ask to lengthen the terms of their loans, but many lenders are reluctant to make even that concession.
Holders of federally guaranteed loans have more latitude. Since July 1, 2009, graduates have been eligible to apply for the Income-Based Repayment Plan. Under the terms of this program, the federal government agrees to limit annual repayment to no more than 10% of a graduate's income. Single people with less than $50,000 of income and married couples with two children and less than $100,000 in joint income are eligible.
Meanwhile, federal loan programs offer graduates other forms of relief, including a graduated repayment program, extended repayment terms of up to 25 or 30 years, and the option to have payments suspended because of financial hardship.
The best form of relief, however, is prevention. Parents should caution their students against taking out large loans, especially private loans. Before deciding whether to enroll in a college or university, it would serve parents and students well to project how much they might need to meet the bills.