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Student Loan Burden Can Snowball, Crippling Borrowers

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These days, the average college graduate leaves school with tens of thousands of dollars of student loan debt, and now it seems that all those financial obligations can linger for years or more, and force many into credit trouble.

The way in which American college graduates are required to pay their student loan obligations relatively soon after graduation is often the cause of instances of delinquency and default, according to an investigation from the Columbus Dispatch, which examined 394 random cases from the roughly 16,000 suits brought against student loan defaulters by the federal government since 2007. Current data show that about 13.4 percent of student loan debtors who were scheduled to begin repayments in 2009 had defaulted by 2011, and millions of people across the country have been in default for several years.

Of the cases brought against borrowers, about 73 percent were filed a decade after the delinquency lapsed into default, and nearly one-third brought against those who had been in default for 20 years, the report said. In these cases, the borrower owed a median debt of $8,100. But of that amount, more than half was made up of compounded interest and fees, rather than their loan principal.

“Interest and fees start compiling and building way beyond what people borrowed, and that’s what makes this problem so traumatizing,” U.S. Rep. Hansen Clarke, a Democrat from Michigan who introduced a student-loan forgiveness bill, told the newspaper. “Student debt is the next big financial bubble to burst. The system needs to be changed to help people deal with this debt.”

Worse for these defaulted borrowers is that in nearly all cases, student loan debt is not affected by a bankruptcy filing, the report said. Of the more than 72,000 bankruptcy filings made across the country in 2011, just 29 people were able to discharge even part of their student loan debt.

Often, these student loans are owed in addition to the other accounts a young adult might have, such as an auto loan or outstanding credit card bills. These obligations can exacerbate the ability of a borrower to meet all their bills on time and in full, particularly with unemployment rates for recent college graduates still stubbornly high.

Image: Donkey Hotey, via Flickr

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