American student loan debt has reached the Everest heights of $1.465 trillion, but it will be U.S. taxpayers on the hook when many of those debt holders default on that borrowing.
Bloomberg recently analyzed student loan securitization data, finding that fiscal risks continue to rise as the debt grows, making it more difficult for former students to pay back the costs of their education.
Paul Della Guardia, economist at the Institute of International Finance, told the outlet that 90 percent of student loans are guaranteed by the U.S. Department of Education – or, essentially, taxpayers.
“If a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the U.S. government budget,” he said.
A concerning factor is the amount of individual loans. Obviously, the higher the debt, the greater the risk of default. Bloomberg found that more than 2.7 million former students over more than $100,000. And 700,000 of those owe greater than $200,000. That is a number that keeps climbing – 2.5 million borrowers owed more than $100,000 just the year before.
The total student debt has skyrocketed, increasing from $675 billion in 2009 around the time the Great Recession ended to $1.465 trillion today.
Further complicating the problem is the increased default rate of loans issued in recent years. This can be contributed to the availability of jobs.
“Borrowers in this group entered the labor force when the unemployment rate was twice as high as today and may have found it difficult to find a career track in their desired field,” Bloomberg noted.
The Bureau of Labor Statistics reported that is also took three times as long to find a job in 2012 compared to today.
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