A Looming Student Loan Crisis?

There's a worry that college students have borrowed too much, creating a parallel mortgage meltdown.

By SHARE

There are growing worries that millions of college and graduate students may have borrowed too much, creating a predicament that parallels the current mortgage meltdown. Bond-rating agencies last week noted a troubling uptick in defaults on private educational loans, and the U.S. Department of Education reported that almost 12 percent of all federal loans that came due in 2001 are already in default.

Those borrowers took out comparatively smaller loans and had opportunities to lock in interest rates of 4 to 5 percent, notes Luke Swarthout of the U.S. Public Interest Research Group. Today's students take out bigger loans and often borrow at variable rates that could rise into double-digit territory. National Consumer Law Center attorney Deanne Loonin warned that students who fall behind on some loans can face collection fees that add up to 40 percent of their debt load.

Congress has created an income-based repayment plan for those with low and middle incomes. Starting in 2009, the program caps payments on federal loans at 15 percent of income. More information can be found at StudentLoanBorrowerAssistance.org.