Student loan default rates are soaring


The Wall Street Journal

(subscription required) reports that "According to new numbers from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That's up from 4.6% two years earlier and would be the highest rate since 1998."

Here's the bad news: Those numbers are going to get worse, even if the economy improves. College costs and the resulting student debt loads are growing far, far faster than incomes. Not surprisingly, all the data shows that larger student debt loads are correlated with higher default rates. As the average debt load skyrockets, so will the default rate.

The Journal offers some information on forbearance and other assistance programs for troubled grads, but here's the problem: Most of those options will just allow your debt to continue growing, harming your ability to save for your retirement, buy a home, and otherwise suffocating your financial future.

The only real way to mitigate the problems of student loans is to avoid them as much as possible in the first place. That might mean that parents drive an old car and go four years without eating out a single time. It might mean that Junior spends his spring breaks slaving away as a barista while his friends are in Cancun. It could also mean community college followed by a state university instead of four years at his dream college. Those are significant sacrifices, but they're the only surefire way to avoid the debilitating effects of student loans in a global job market characterized by sparse benefits, job insecurity and wage growth that barely keeps up with inflation -- if it does at all.