Crisis Growing in Student Loans

Friday, 22 Mar 2013 08:06 AM

By John Morgan

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College graduates are defaulting on growing amounts of the staggering $1 trillion in student loans in the United States, and some universities are suing to get their money back.

Well-known schools among those filing suit for nonpayment include Yale, the University of Pennsylvania and George Washington University, NBC News reported.

College students are defaulting on nearly $1 billion in federal student loans earmarked for the poor, which could jeopardize the revolving Perkins loan fund intended for those with extraordinary financial hardship, according to Bloomberg.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

Unlike most forms of debt, student loans cannot be forgiven even by declaring bankruptcy. Colleges are obligated to recover the money on behalf of taxpayers, according to Bloomberg.

“With $80,000 worth of debt, even if you get a job that pays $60,000, which is about the average for a lot of college-level jobs, you’re still below the water and the potential for you to default is much higher,” Jonathan Robe, research fellow for the Center for College Affordability and Productivity, told Fox Business Network.

“I think that’s what’s happening here — the students feel like they just flat out don’t have the money.”

At public universities, enrollment declined slightly in 2012 to 11.5 million students, but state and local support per student declined 9 percent to $5,896 per student, the lowest level in 25 years, according to the State Higher Education Executive Officers Association.

Even as student loans are going bad at a growing rate, the demand for student loan securities by investors remains high.

SLM Corp., the largest U.S. student lender, recently sold $1.1 billion of securities backed by student loans, and demand for the riskiest ones was 15 times greater than supply, unnamed sources told The Wall Street Journal.

The Federal Reserve Bank of New York said 31 percent of people paying back student loans were at least 90 days late at the end of 2012, up from 24 percent in the fourth quarter of 2008. The Fed figures include both federal student loans and private loans.

President Barack Obama says he wants to expand access to college for working-class families and increase funding for the Perkins program. Under his proposal, the fund for Perkins loans would jump to $8.5 billion from about $1 billion, Bloomberg reported. The Education Department would service the loans instead of colleges.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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