Is the Near-Trillion-Dollar Student Loan Bubble About to Pop?
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Kate Sternwood (not her real name) was recently laid off from a job at a nonprofit organization where she was making $55,000 a year. She has $40,000 in debt from the University of Massachusetts. “When I called my repayment program to tell them I was losing my job, they told me my payment would go from $400 a month to $384 a month because making $55K a year I already qualified for the "hardship" rate.”
The agency in question is Van Ru, a collection agency that takes loans from the Dept. of Education if they go into default. Sternwood said they can't even tell her what the rate will be when she's paid enough to get out of default because they don't know which bank will end up with her loans.
Colleen Williams, a writer in New York, has $975 a month in payments on various student loans from her undergraduate degree at the University of New Mexico and her graduate degree from Parsons School of Design; $325 of that is automatically debited from her account each month after she went into “Student Loan Rehab” after a default.
“When you default on government loans, the collection agency the loans eventually go to are ridiculous,” she said. “Obviously someone defaulting on student loan debt does not have the payoff amount, and they will argue with you, repeatedly, to get you to pay $30,000 off, in full. 'Don't you have a friend you can borrow the money from?' etc.”
Williams noted that she's not pursuing the career she originally intended after Parsons, which was fashion design. “If I could do it all over again, I would have gone into science,” she said.
Matt Hindman graduated two years ago from Temple University in Philadelphia and is pursuing a career in film. “We are all trying to get our feet wet in our collective industries. The job hunting process costs money too,” he pointed out. “I don't think it makes sense that I got penalized for being late on payments during my first year out of school. Plus I went into forbearance once, so now my interest is super high from that.”
The story is the same around the country. The economy is stagnant, the job market terrible, and graduates who used to believe their degrees would lead to good jobs are struggling. Meanwhile, the unforgiving student loan system continues to penalize them for their inability to pay.
As Mychal Denzel Smith at the Grio pointed out, “The fundamentals of our economy aren't strong, but they are the same as ever: we are a country built on low wages and debt.” With those low wages, and particularly with the likelihood of finding a job remaining so low, students who took on debt to pay for an education cannot pay it back. We're in the middle of another bubble—a student loan bubble. And it doesn't look like we've learned much from the impact the popping of the housing bubble had on our economy—the same lending practices are continuing.
Since the beginning of the recession, most types of credit have gone down. The only exception to that rule has been student loans.
A recent piece in the Atlantic noted that student debt has grown by 511 percent since 1999. At that time, only $90 billion in student loans were outstanding—by the second quarter of 2011, that balance was up to $550 billion, according to the New York Fed. And the Department of Education estimates that outstanding loans total closer to $805 billion—and that number will pass $1 trillion soon.