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US about to hit debt ceiling, while many college graduates already have

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The U.S. officially reached its debt capacity at the end of the summer and has been using other pockets of money to meet its myriad of financial obligations.

The extent of these funds will be exhausted on or around Oct. 17. With the government shutdown continuing, people are nervous that the debt ceiling could actually be reached.

At the same time, college loan default rates are reaching an all-time high. While the two-year default rate is a low 10 percent, the three-year rate has reached 14.7 percent. This means that, as a country, our college graduates are defaulting on $150 billion in loans.

What does this say about us as a country? While our political leaders do not seem to have any trouble spending us into oblivion, it would be nice to hear that our citizens are being more responsible. Unfortunately, that is not the case.

Defaulting on student loans is no small matter. In order to default, you must be at least 270 days behind in payments (though many financial institutions allow you to fall behind an entire year before filing your loan as a default).

If defaulting on federal student loans occurs, you may have your wages garnished, tax returns kept by the government and even have your future Social Security income withheld.

With our country facing a national debt that is close to $17 trillion, and student debt at just over $1 trillion, we need to take a serious look at how much money we are borrowing so that we can figure out how to get it paid off.

Unfortunately, with a college graduate unemployment rate hovering around 8 percent, and half of those working in jobs that don’t even require a degree, it could be a long time until these loans are paid off (if ever).

We could see significant increases in defaults in the future, further threatening our financial institutions, which are still trying to recover from the mortgage crisis of 2008.

If these citizens cannot make payments on their loan accounts, how can we expect them to be able to save for retirement? We already have a major problem in this country with people not saving enough due to the reliance on the government to take care of them, hoping that Social Security will still be there to get them through their retirement years -- assuming they can eventually retire.

The moral here is simple: Start saving now. Don’t say you can’t, because this is not an “either-or” situation. This is a must. We need to, as a country, begin spending less and saving more.

I know this will hurt the economy in the short term. However, if we do not start sometime, I am truly afraid of what our future will hold.

Joe Wirbick

Joe Wirbick

Joe Wirbick is the president of Lancaster financial services firm Sequinox. Joe specializes in retirement planning and distribution. Tax information is provided for informational purposes only.

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