We would be mistaken to think this recession has had little impact on college students.
Data released in June shows that consumers owed about $826 billion in revolving credit in comparison to the $830 billion dollar debt owed by students in both private and federal loans. Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, compared the growth in education debt to cooking a lobster, “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”
Examining the risk of college today, Jacob Hacker, a professor of political science at Yale University finds it to be astronomical compared to a generation ago when college meant modest loans and part-time work. In his book “The Great Risk Shift,” Hacker notes that the while the number of students enrolled in college rose by 44 percent, the cash value of student loans rose by 833 percent. In addition to student debt exceeding credit card debt, government data released this month also shows that student default rates have risen from 5.9 to 6 percent for public institutions.
There are a number of explanations that might explain why student debt has exceeded credit card debt and why default rates are also up. The first examines the case of a consumer juggling both credit card and student loan debt. In this situation, a consumer is likely to pay off credit card debt first because it tends to carry a higher interest rate. Second, economical factors come into play. Tuition rates in both state and private institutions have been rapidly increasing past the rate of inflation — on top of the cost of textbooks and housing. When this rising monetary amount is coupled with the high unemployment rates for recent college graduates, it contributes to the inability of students to make monthly payments.
This information should serve as a catalyst to many students. The situation is growing bleak and is not letting up anytime soon. So what can possibly be done?
As college students in these times, we must adapt and become less myopic in our thinking. Examine your debt obligation carefully. Take into consideration the amount you will need each month for loan repayment, and plan your situation accordingly. Don’t expect that everything will be okay once you find a job because it might not come as soon as you anticipate; thus, plan living conditions that consider unemployment. Wishful thinking without calculated action does not pay the bills. Prepare for a situation where you’re ready to move back in with the parents and rough it out.
Another important measure that can be taken would be to save for unexpected situations. Don’t frivolously and impulsively spend; wisely considering large purchases is responsible. The concept might seem unnatural and imponderable, but its implementation might be essential for students when it comes to dealing with student debt and prolonged months of low to no income. Additionally, students must think of the fact that bankruptcy is simply not an option for avoiding a debt obligation. To expulse an amount of student loans in any bankruptcy filing, an individual must prove what is termed undue hardship.
According to bankruptcy judge John Ninfo, not being able to afford your payments does not cut it. You or your dependent has to have a mental or physical impairment that prevents you from working. A little careful planning for the future can prove to be essential to one’s economic and total well-being.
Mai Tran is a political science junior and may be reached at [email protected].
Students have got to remember that student loans aren't free money, though it seems like it when they give it to you. I have friends who used their student loan money to pay for everything from books to beer, and now their payments are killing them. They just cut you a check and you use it as you please. In fact, check out this story about a couple using student loans to pay for a mansion: http://onthefrontlinesofamericanswarwithdebt.word…