An article in the Wall Street Journal from April of 2009, warned that defaults on student loans would skyrocket to 6.9%, the highest default rate since 1998. There had been a steady climb since 2003: from a rate of 4.7% in 2005 up to 5.3% in 2006.
“The volume of people in trouble is definitely increasing,” stated Deanne Loonin, an attorney with National Consumer Law in Boston. She is a staff attorney with the firm, which counsels consumers on student loans. As you can well imagine, from 2008 to 2009 it was getting even worse due to the faltering economy.
The final figure released by the Department of Education in September of last year indicated that 6.7% of all student loans went into default between October 1, 2006 and September 30, 2007 (government fiscal year). This reflected the plight of college graduates in recent years who faced a declining economy near the tail end of 2007. Especially since the subprime real estate lending debacle, the loss of jobs has continued to mount. At the beginning of 2010, we are facing serious unemployment in the United States with the rate climbing into the double digits of over 10%.
U.S. Secretary of Education, Arne Duncan, explained in a press release, “The economic downturn likely had a significant impact on the borrowers captured in these rates…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.”
Are you Behind on Student Loan Payments?
College graduates have been caught in the economic downturn and having a huge debt to pay back when you cannot find a job is a tough situation to be in. Even if you haven’t graduated yet, you will still be required to repay your loans. If you happen to be struggling with your student loan payments, it is never wise to allow your loan to go into a default status while you wait for the economy to get better.
Weighing the Consequences of Defaulting?
It’s important to realize that late or missed payments will damage your credit score in a time when you are trying to make a foundation in life. Not making any payments is even more serious. If payments are not made for 270 – 360 days and no arrangements are made with the lender, your loan will go into default. The result of defaulting is not dischargeable through declaring bankruptcy and the government possesses powerful tools to go after borrowers who default. Rather than let things go into a default status, some type of plan for repayment or a forbearance should be established.