Broken Bank

One Trillion Dollars and Counting: A Student Loan Crisis?

As every financial aid officer knows, student loans have afforded millions of middle-class students the opportunity to go to college, even as tuition rate increases outpace inflation. However, at $1.3 trillion dollars, student loan debt now exceeds credit card debt, and some people fear that it may fuel the next big financial crisis in the United States.

The Problem

The housing loan crisis and recession of last few years have forced consumers to take a hard look at the way they manage debt. Since 2007, delinquency levels in almost every category of loan have declined, with one exception — student loans. Moreover, the default rate on student loans, although down from nearly 15 percent in 2013, was a whopping 13.7 percent in 2014.

Most financial analysts blame the fact that students are able to qualify for student loans without background checks or credit score limits; student loans are given not because the borrower has a proven record but because lenders are betting on the value of a college education.

When students graduate from college and are unable to find a job with enough income to make debt payments, they find themselves forced to default or delay payment on their loans.

Potential Impact

The impact of this impending crisis is two-fold. First, graduating college students must postpone their financial independence. Many, in fact, continue living at home with their parents. Not only are they unable to make large purchases; they cannot even declare bankruptcy and hope to escape the student loan burden.

Student loan debt also has a ripple effect on the economy as a whole:

  • Students with loan debt are less likely to start small businesses, because they are not able to generate capital.
  • Student loan debt influences career choice, leading graduates away from public-interest jobs.
  • People under 30 who have student loan debt are purchasing fewer homes even as the economy improves.

What Can Be Done

Barack Obama recently announced a proposal to make community college tuition free of charge, and Governor Andrew Cuomo has suggested a 2-year student loan forgiveness program. These proposals suggest that politicians are attempting to grapple with the problem. Whether initiatives like these will be successful, however, depends on many factors.

A more immediate and practical approach can be taken by financial aid offices themselves. Teaching financial literacy and working carefully with students to make sure that they are informed about other options, such as scholarships and work study programs, is an important role universities can play in reducing the burden of debt American students carry into the future. We know this is a big job for financial aid counselors who are already juggling compliance burdens with a growing student population and limited hours in the day.

Financial Aid Tools

Luckily, there are financial aid software tools out there, like AwardLetter, that assist financial aid officers with student financial education. AwardLetter gives schools the ability to send dynamic, interactive award letters that will educate students in they way they’re accustomed to learning – digitally and with aesthetics. Today’s students are willing to be self-taught, but their access to information must be immediate, visually attractive and, preferably, in video format. AwardLetter makes all of that possible.

Don’t just take our word for it. Western Governors University students borrowed $93 million less the first year the school implemented AwardLetter.

To learn more about AwardLetter, request a demo below or contact us.