Quantcast
Published On: Mon, Nov 27th, 2017

Student loan scenario in US is worrisome: Reason is still vague

The US economy is not very bad and the rate of unemployment has also reduced but more and more Americans are defaulting on student loans, a mystery that is yet to be unraveled. In this article, let us find out some of the aspects that might be hindering the improvement in the current scenario and whether or not there is a silver lining ahead.

photo/ Mary Pahlke

The current scenario

Studies reveal that students that have availed student loans are defaulting on the repayment of the federal student loans and it is quite confusing as it is not being understood whether it is a temporary phase or a distress signal.

It has also come to light that as many as 3.4 million Americans have not shelled out their payment for more than 30 days towards payment of education loans and the number of such people recorded is a whopping 330,000 debtors.

According to a senior economist in the US, there’s no concrete reason why these debtors are defaulting or falling behind on payments especially when the economy in US has looked up since June 2016 and characterized by higher income by majority of the household, increase in wealth and assets, and reduction in unemployment rate.

Not only that the purchasing power of individuals has improved remarkably and the personal finances of households have looked up too as per federal data. While few students are wondering whether or student loan refinance could be an alternative, others are trying to work out ways to make ends meet.

The so called “generous government plans” introduced by the Obama Administration that encompassed the repayment of loans depending on the income level of a household did a lot of good to the households.

Under the scheme/plan, even borrowers that had no monthly income could avail the facility provided they documented or recorded their income annually.

However, despite these generous financial expansion efforts, why American students are falling behind on payments is a mystery and a reason that still needs to be found out. Under the scheme as many as 4.2 million student debtors have availed the facility up from 4.2 million in the year 2016 as recorded by the Education Department data.

Probable reasons for delinquency

The officials belonging to the Education Department are citing 2 possible reasons for such a situation.

 

  • Chances of evening out

 

One of the reasons that say is that it is quite likely that the delinquency rate could be finally evening out especially when all these years there has been a decline.

 

  • Failure to adhere to monthly repayment plan

 

The other reason is that it could be a possibility that the borrowers that had opted for the monthly payment plan under the generous repayment plan found it easier to carry out the repayment for a year. And thereafter, as the monthly payments started to dwindle the monthly repayment amount was something that was difficult to shell out.

It is because as per the monthly payment plan, an individual opting for the scheme had to submit information about their earnings within a year, subjected to which they could continue to enjoy the privilege of paying depending on monthly income. But that was not the case and a sizeable number fell out of the plan.

Interestingly, studies found that the ones that had fallen out of the plan were the ones that became delinquent on their student loan payments, the main reason why they had to explore other avenues of repayment as student loan refinance and the like.

While the Education Department has cited these 2 possible reasons for the rise in delinquency, few others are of the opinion that it is quite likely that the borrowers that were regular with their payments might have paid off their loan in full, thereby highlighting the ones that were habitual defaulters from the very beginning.

Author: Jimmy Simond

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>



At the Movies