Released: September 24, 2006

Best debt for students is no debt

Source: By Michelle Singletary, Washington Post (Free Registration)

We’re told over and over again that student loans are good debt. The conventional wisdom says that, like a home loan, student loan debt will turn into an asset. But what happens when it doesn’t turn out that way? What happens when people take on tens of thousands of dollars in loans that may take decades to pay off?

Increasingly, they fall behind on their loans or default. The U.S. Department of Education recently reported that the national default rate on federal student loans rose slightly, to 5.1 percent, in 2004, the latest statistics available, from the previous year’s record low of 4.5 percent. The default rate represents the percentage of borrowers who began repaying their loans between Oct. 1, 2003, and Sept. 30, 2004, and who defaulted before Sept. 30, 2005.

Although the default rate is low compared with the all-time high of 22.4 percent set 14 years ago, the latest increase is still a signal that shouldn’t be ignored.

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