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Student Loan Debt Crisis: How’d We Get Here and What Happens Next? (US Education)

Written By Julianna Benson on Monday, February 11, 2013 | 12:16 AM

Student Loan Debt Crisis: How’d We Get Here and What Happens Next? (US Education)
Student Loan Debt Crisis: How’d We Get Here and What Happens Next? (US Education)  - The amount of student loan debt and the rate of delinquency have been climbing for years now. If it seems like every new statistic is worse than the last, that’s because it is. Two studies released this week are no exception.

Credit bureau TransUnion says that in the past five years, the average student loan debt each borrower carries has risen 30% to $23,829. More than half of student loan accounts, which add up to more than 40% of the total dollars owed, are in deferral status. This is just a temporary reprieve; students can defer for only a few years before they have to repay.
The trouble is, many of them aren’t doing so. FICO Labs found that delinquencies rose by 22% in five years. For the newest group of loans it studied, delinquency rates are 15.1% — higher than the 11% cited by the Federal Reserve in a November report. Like the Fed’s study, the FICO analysis doesn’t include loans that are in a deferred status — which means the number of people who can’t afford to pay back that money may be almost twice as high as what the official delinquency rates reflect.

This situation obviously can’t be sustained over the long term. “I think a few more years and it’s going to be a general crisis,” says Barry Bosworth, an economist at the Brookings Institution. Interest rates are unusually low right now; when they rise, more borrowers who were just keeping their heads above water are liable to become delinquent.
Note EU-Digest: some European Governments like that of the Netherlands have also started to move away from Government subsidized student support and opted for a privatized student loan system. Given the results obtained in the US with this privatized loan system it does not seem to be the proper way to proceed.
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