Defaults on those loans are rising as students cope with a shortage of well-paying jobs coupled with ever-increasing tuition costs, according to a Wall Street Journal report Tuesday.
According to the U.S. Department of Education, default rates are expected to hit 6.9 percent for fiscal year 2007, up from 4.6 percent two years earlier and the highest mark since 1998.
Private lenders are also seeing a similar trend, according to the report. Sallie Mae saw former students default on 3.4 percent of their loans in 2008 – a rate twice as high as in 2006. Student Loan Corp., a division of Citigroup, wrote off 2.3 percent of student loans in 2008, compared to 1.5 percent in 2007.
But struggling graduates do have some options to relieve the financial strain, reports the Journal. Most federal loans qualify for "forbearance," which means payments can be temporarily suspended, though interest still accrues during that period.
Some loans also qualify for "deferment," which means the government picks up the interest payments for a set time.
Deferments and forbearance both have a three-year maximum for each loan.
Unfortunately for students, private institutions offer fewer options in the currently strained economic environment. While most banks traditionally offered borrowers forbearance in the past, the credit crunch has curtailed those allowances.