The country's outstanding student loan debt now stands at over a staggering $1.18 trillion. Among the country's 40 million borrowers, 7 million have defaulted on their debt, and in the face of rising interest rates, the country's student loan debt crisis could grow worse.
A study performed by Hamilton Place Strategies, a public policy consulting firm, found that the average student loan debt at graduation has ballooned 200 percent since 1993, and that by 2023, the average debt of a college graduate will be equal or greater to the median income of most young professionals.
The New York Federal Reserve also released reports showing the far-reaching effects that student debt has on the country's economy. Their research showed that the millennial generation is so over-burdened with college loans that they are unable to participate in many of the major purchases that drive the economy, such as buying a car or a first home. It can also keep the 7 million Americans who have defaulted on their loans from finding work.
When a person defaults on their student loan, their credit rating is severely affected. Many companies today run credit checks on potential employees, meaning those who have defaulted on their loans are more likely to be passed over for a position.
The few borrowers who are able to eliminate their debts may look to settle with lenders. Settlement is a complex process, but it's one that is often an appropriate last resort for many borrowers.
To reduce the likelihood of legal action and settlements even being necessary, lenders need to be more risk averse when it comes to extending credit to young borrowers. Risk management software helps lenders make more informed decisions.