Student loan defaults are on the rise, and indicators suggest that we have not yet seen the peak of this trend. Defaults on educational loans were already rising between 2005 and 2007, and the recession had not even started yet. Now, with the economic downturn factored in, these numbers are veritably skyrocketing. Federal loans are seeing the worst numbers, but private loans are taking a beating as well. At Sallie Mae, the United States’ largest provider of private student loans, the default rate is all the way up to three percent.
It’s no wonder that consumers are having major difficulty in meeting their student loan obligations. Lauren Asher of the nonprofit group Project on Student Debt speculates that overall decreases in borrowers’ ability to pay any kind of debt and a significant increase in the amount of student loan borrowers have both played a role in the current situation. Student loan defaults not only have a lasting and damaging effect on the delinquent borrower, but the government as well. Sallie Mae loans, for example, are ninety-seven percent backed by the government. Every bad loan plays a minuscule part in compounding the economic crisis.
Lenders are taking dramatic steps towards restructuring their loan products, in the interest of encouraging borrowers to start paying. This summer, some borrowers may be allowed to repay federal loans on the basis of the starting salary at their new jobs. Basically the more money you make, the sooner you would be expected to pay off your debt. Those making lower salaries (or unable to find work) can defer their loans, or pay very little at first.
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