Many Americans divide balances into “good” and “bad” debt. Student loans have historically fallen into the former category, because a solid education is expected to open up more opportunities to graduates. While many Americans still believe this to be true, a growing number of households are facing mountains of student loans with no jobs in sight. The hiring rate among recent graduates remains low as the labor market continues to struggle, leaving more young and middle-aged adults with no way to meet their obligations.
Nearly one in every five households – 19 percent – carried a student debt burden at the end of 2010, according to a recent Pew Research study. This figure is up from the 15 percent that owed student loans in 2007 – prior to the economic crisis – and nearly double the number of households that carried education debt two decades ago. Further, the study showed that 40 percent of households headed by an individual younger than 35 carried student debt, another record high.
The study also revealed that student loan debt is growing the fastest for individuals in the lowest income brackets and highest income brackets. Outstanding education loans for the poorest fifth increased to 13 percent in 2010 from 11 percent three years earlier. Outstanding debt for the richest fifth also climbed to 31 percent during this period, up from 28 percent in 2007.
Many analysts have grown concerned about the rising number of Americans who must now include large student loans in their monthly budgeting. Some have argued that it may become the next large-scale financial crisis. This is largely because tuition costs have increased significantly over the years, and many Americans are now graduating with tens of thousands of dollars in debt balances and no jobs in sight.
Hefty loans may inhibit the next generation from purchasing homes, planning for retirement and building a healthy savings fund. Unlike other types of debt, student loans are often not discharged in bankruptcy and failing to pay them can lead to severe credit score damage.
For those reasons, more credit counselors and financial professionals are urging adults to seek assistance in finding the most effective ways to pay down their balances. In addition to choosing a suitable repayment plan, prioritizing education balances by curbing other types of household spending is essential to putting more income toward student loans and eliminating them quickly.