The majority of young people attend higher education on the premise that student loan repayments will easily be offset by the greater income a university education brings. According to "The smart student guide to financial aid: Student loans" report by FinAid.org, the average student debt currently stands at $21,899. The declining global economy means that there are now fewer job opportunities so loan forbearance, loan deferment and student loan default rates are rising sharply.
Rising Student Loan Default Rates
Deanne Loonin, a staff attorney of the National Consumer Law Center, stated: "The volume of people in trouble is definitely increasing." According to it's latest report, SLM Corp (Sallie Mae) wrote off 3.4% of 'troubled' loans in 2008. Citigroup also had no alternative but to write-off 2.3% of student debt. All university graduates enjoy a six month repayment holiday on federal student loan repayments.
Loan Forbearance
Loan forbearance allows a graduate to defer repayment for up to a period of three years. Whilst this helps overcome short-term financial difficulties, it can worsen finances in the long run as interest remains payable so student debt rises. For example, not making repayments for 12 months on a $20,000 student loan at 7% will add $1,400 to the amount owed.
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