Student loan delinquency rates have reached a 21-year high of 10.2 percent in the second quarter, according to recent news.
- These rates are a stark reminder of the $1.7 trillion debt crisis facing the United States.
- High monthly payments and rising interest rates are exacerbating the problem.
- The situation is particularly dire for graduates who are struggling to make ends meet.
Debt and Interest Rates
Depending on the type of loan, interest rates can range from 6 to 17 percent.
| Loan Type | Interest Rate Range |
|---|---|
| Federal Student Loans | 6-8 percent |
| Private Student Loans | 8-17 percent |
The high interest rates mean that students are paying mostly interest for a few years.
With big increases, they can be under water fast.
This is normal for home loans.
Borrowers know they will pay more than twice the sticker price over the course of a loan.
They put up with it with the expectation of a rising asset valuation.
The asset in question is the degree.
Unfortunately, the degree does not guarantee a good job or a high salary.
The Reality of Student Debt
Expenses eat up low salaries while interest and taxes take the rest.
Graduates are greeted with a reality that they did not expect.
Their degrees can get them in the door but guarantee nothing in terms of advancement.
Nearly every profession requires certifications that are hard to obtain and impossible to game.
Many graduates are still paying on debts from college that they regret attending.
The debts can be six-figure and make it impossible to consider homes and drive down their credit rating.
It feels like a sand trap that is never going away.
Expectations and Reality
Many young professionals are carrying six-figure debts that make it impossible to consider homes and drive down their credit rating.
It feels like a sand trap that is never going away.
Those with family money can crawl to mom and dad but those without are seeing another decade ahead or more in which they are barely scraping by.
The single most important insight for young people just starting out is this:
They cannot and will not live like their parents for a very long time.
They must cut back, eat at home, reduce belongings, stay out of debt, live in small apartments, buy used cars, seek out free entertainment, and cut it out with all the frivolous spending.
Debt and Financial Constraints
The advent of high interest rates beginning three years ago marked the end of an era.
It was the dawn of the real world of financial constraints.
Those are now hitting an entire generation very hard.
The credit companies are leaning in hard, collecting all they can, while the bosses at work are demanding more and more productivity, even as job security is no longer what it was.
People are being fired all the time with downsizing now a constant feature of professional life.
Debt limits options. Debt hobbles choice. Debt ties you down. Debt is slavery.
Debt and Expectations
Ten years ago, young people were getting the message that these loans would never have to be paid.
They believed it, and voted for politicians who said this.
It was always a ruse.
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