Americans now have more student loan debt than credit card debt!
We’ve gone on and on about the evils of credit cards on this blog. But I’m realizing that we may have picked the wrong pony.
Late this summer, it was reported that for the first time in history, we owe more on our student loans than our Visa and MasterCards!
Mark Kantrowitz of FinAid.org said in August that outstanding student loans totaled nearly $830 billion, while according to the Federal Reserve, revolving credit card debt in the U.S. is at around $826.5 billion.
Many are predicting that student loan debt will follow the same storyline as the housing market, and like the mortgage bubble… it will burst.
What will happen as more and more people are unable to write out checks to pay their student loans?
According to the College Board, borrowing to pay for tuition has doubled in the last 10 years.
Mark Kantrowitz claims $300 billion of that $830 billion comes from federal student loans incurred in just the past four years. Here’s what Kantrowitz told the Wall Street Journal back in August:
“The growth in education debt outstanding is like cooking a lobster. The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”
Private student loans make up for about a quarter of all college debt. The rest are federal loans like a Stafford loan. The issue with those federal loans is they are not included if you file for bankruptcy. While an auto loan, credit card debt, and even a mortgage can be wiped out…student loan debt will follow you until the day you die.
The only thing you can possibly do is default on the loan. Even then, Anya Kamenetz, author of DIY University reminds us on The Huffington Post that with federal student loans, the government can take away your tax return, disability payments and Social Security (if there’s anything left to take).
People are becoming saddled and strangulated by student loan debt at a terrible time in this country.
The struggling economy has made for a less than friendly job market for new graduates.
Is it really a big surprise that the default rate on student loans was 7.2% in 2009? It was 5.2% in 2006. The default rate is triple for people who attend for-profit schools. Anya Kamenetz compared the situation to the mortgage robo-signers.
Here’s what she wrote for The Huffington Post:
“Someone with experience in the for-profit college marketing business told me that the same online sales geniuses who used to work for mortgage brokers are now employed by for-profit colleges. Their business is the same: fill out the forms, get the money, consequences be damned. Will we stop them this time?”
The U.S. Education Secretary sees the problem as well. “This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times,” said Secretary Arne Duncan. “The data also tells us that students attending for-profit schools are the most likely to default.”
There is one big difference between the mortgage bubble and the student loan bubble, which Kamenetz pointed out. While home ownership rose leading up to the mortgage crisis, the percent of young people who pursued higher education and actually got a degree dropped.
If you’re feeling the pain when you have to write personal checks to pay your student loans, you can always look on the bright side. Charing Ball, a writer for The Atlanta Post made this observation…”while you can foreclose on a house, or repo a car, you can’t take back an education.”
Watch the video below to find out more about student loan debt in America.