The total outstanding student debt flew past $1 trillion last year; making student debt an even bigger issue than credit card debt. And now students are looking at their interest payments double.
A 2007 law lowered Stafford loan interest rates from 6.8% to 3.4% – half the original rates. The provisions of that law will expire on July 1; causing future interest rates on Stafford loans to jump back up to 6.8%.
This is an especially significant figure considering that more and more individuals are taking out loans for college. The weak labor market makes college an attractive decision for many individuals, especially since college grads typically receive much more money than high school grads.
The problem, however, is that many borrowers are strangled by their student loans.
Major milestones in a young adult’s life, like marriage and a first house, are being put on hold as money matters clamp down on these individuals. This might not seem significant at first blush, but it does shave off a pretty significant number of years from the current demographic. People are too busy paying off student loan debts to actually advance their own personal lives.
And the issue of student debt doesn’t just affect 20-something young adults.
Even parents who co-sign the loans of their kids and displaced professionals who hit a slump in the weak economy feel the weight of student debt. This is especially problematic for those that run into unexpected delays in schooling, like David Johnson. The 58-year old ex-gardener took out $18,000 in loans to finance his nursing degree, only to find himself on a waiting list after finishing the prerequisite classes. “I don’t have a lot of working years left and I’m saddled with this debt,” he says.
If interest rates jump to 6.8%, then we will see a lot more people with David Johnson’s problem on the market. Worse yet, we could find ourselves with an increasing number of graduates that can’t move on in life because of the crushing burden of student loans.