Study: Default on student loan debt more likely than ever

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Betsi Fores The Daily Caller News Foundation
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Young people with student loans are more likely to be delinquent than ever before, according to a new study released by Fair Isaac Corporation (FICO).

The situation poses an even greater risk because more individuals hold student debt than previously.

The student loan delinquency rate has grown nearly 22 percent over the last six years. Between 2005 and 2007, the loan delinquency rate was 12.4 percent. Between 2010 and 2012 however, the rate rose to 15.1 percent.

“This situation is simply unsustainable and we’re already suffering the consequences,”  Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs, said in a statement.

The problem with the expansion of student loan debt is that many recent graduates are loaded with debt and working at jobs they are overqualified for. As The Daily Caller News Foundation reported previously, a recent study found that 37 percent of employed college graduates are working in positions that did not require their college degree.

“When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default. There is no way around that harsh reality,” Jennings adds.

The level of student loan debt has expanded as well. In 2005, the average student was $17,233 in debt, but by 2012 that number expanded to $27,253 — an increase of 58 percent in just seven years.

“Even people who stay current on their student loans are dealing with very large debts, which reduces the money they have available to spend elsewhere,” says Jennings.

“The government currently holds roughly 85 percent of outstanding student debt and is very forgiving and flexible when it comes to repayment methods,” offering many options when it comes to repayment, TheDC News Foundation reported.

The federal student loan program is not based on ability to make payments, like normal loans. Instead they are granted based on need, in order to expand access to college.

“The stakeholders in the student lending industry have to take a hard look at the terms and repayment rules for student loans, and the industry may have to develop a new lending model to prevent a bad situation from getting completely out of hand,” Jennings concludes.

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