Students who took out student loans four or five years ago are graduating into a weak job market with a mountain of debt, posing an increasing worry to both policymakers and bankers.
Earlier this year the Consumer Financial Protection Bureau reported that total student loan debt exceeded $1 trillion. It's even higher now and Eduardo, of Lakehurst, NJ, is part of that staggering total.
Eduardo says he took out student loans in 2005 to attend Full Sail University, a for-profit arts school. The loan was divided into four loans – two federal and two private. He says each has a different interest rates with one as high as seven percent. The debt quickly multiplied.
$80,000 in loans
“Originally, I only owed approximately $40k, but with interest, it has risen to $80,000 -- pretty much double,” Eduardo wrote in a ConsumerAffairs post.
Kathryn, of New York, NY, is pretty much in the same boat. She said she turned to Sallie Mae for loans because she had no co-signer and she considered them the only source of funding.
“The rates are ridiculous,” Kathryn writes. “They make it actually impossible for people/students to actually get out of debt and even make a living after they graduate.”
All of this is deeply worrying, not only to federal regulators but is also getting bankers' attention. A report from Barclays Bank shows the average debt burden for students attending a public four-year collage have risen by only $2,000 per borrower over the last 12 years, the trend is not encouraging.
And of course debt levels for students attending for-profit colleges are much higher, with those enrollments increasing sharply in recent years.
Both young and old affected
The report expresses the worry that these rising debt levels are imposing hardships on both the young, who are graduating without adequate jobs, and retirees, who have co-signed for children or grandchildren and now well past their peak earning years and, in some cases, forced out of jobs.
The report notes that borrowers who got a degree had a default rate of 3.7 percent in 2009 while the default rate for those who didn't finish their education was more than four times higher. And while all this could pose increased stress on the financial system, individuals like Eduardo and Kathryn and left holding the bag. If they had it to do over again, both would have taken a different course.
“Truth is, I'm not benefiting from the education I received at Full Sail,” Eduardo writes. Albeit entertaining and informative, I received no assistance after graduation and haven't worked in what I studied a day in my life.”
“I would have been better off struggling and working through school and finishing slower rather than borrowing money,” Kathryn concludes.
Story provided by ConsumerAffairs.