Big Student Loan Bills Could Hurt the Economy

[Oct 29, 2007.]

Over the past 10 years, the cost of a college education has nearly doubled. As a result, students have been forced to turn to loans to finance their classes in a move which could spell trouble for the American economy.

Those who have secured private loans may have noticed that their interest rates can go as high as 20%, making them difficult to repay. In fact, some college graduates have decided to forego marriage or having children because of the high cost of repaying their student loans. It's not unusual for a student to owe as much as $150,000 in both private and government-backed student loans. Their loan payments alone may amount to as much as one-fourth of their monthly net income.

In many cases, students are finding that they simply cannot earn as much as they need to in order to repay their loans and to live comfortably. As a result, they may be forced to choose between living in their own apartment or staying with their parents and making their monthly loan payment.

Some higher education officials liken the situation to indentured servitude. College graduates must devote years to repaying their loans, seriously jeopardizing their standard of living.

In 2006, more than $17 billion worth of private student loans were issued. That's $4 billion higher than 2001's total. All told, student borrowing last year skyrocketed to $85 billion.

That's hardly surprising, considering the cost of attending college. Over the past decade, the tab for tuition, fees, and room and board at 4-year public colleges and universities grew 79%. The situation has not been much better at private institutions, where the costs have risen 65%.

Meanwhile, observers are predicting a sharp rise in defaults on private student loans in the coming years. The situation can be most dire for doctors, who may owe more than $300,000 in student loans.

Julie Ann Amos
October 29th 2007

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