The process of taking out student loans can be nerve-racking, but the reality of paying those loans back can be downright sobering—especially when a looming, large number suddenly becomes very real during the repayment period.
Between 2003 and 2013, the share of 25-year-olds with government and/or private-student-loans climbed from 25 percent to 45 percent. In the 2011-2012 academic year, 10 percent of college graduates had more than $50,000 in student loan debt—in 1999-2000 that number was only about 1 percent. Growing debt is largely the result of climbing tuition prices, which lead many students to lean more heavily on borrowing than they once did.
But even though the cost of tuition is rising, borrowing more money to bridge the gap can become problematic. “Increases in student borrowing and default rates raise concerns that some students may be borrowing too much,” according to a new paper from NBER, which takes a look at student-loan debt and instances of student-loan-debt default in an effort to uncover the best approach to repayment for both borrower and lender.
Along with the growing cost of tuition is a growing group of former students who have difficulty making their payments on time, or at all. According to the study, for people under the age of 30, the share who were late on their payments climbed to 35 percent in 2012, up from 20 percent in 2004.
Default is bad news for both borrowers and lenders. It can lead to damaged credit, garnished wages (for defaulting on federal loans), not to mention a mountain of stress. And while large lenders don't suffer the same strain as the individual in default, it's still bad for business since lenders lose an income stream and may become involved in lengthy legal actions if they attempt to collect the debt.