Student loan debt hits record levels
Wednesday, October 19, 2011
Student loan debt hits record levels
By: Dennis Cauchon, USA TODAY
Students and workers seeking retraining are borrowing
extraordinary amounts of money through federal loan programs,
potentially putting a huge burden on the backs of young people
looking for jobs
The amount of student loans taken out last year crossed the $100
billion mark for the first time and total loans outstanding will
exceed $1 trillion for the first time this year. Americans now owe
more on student loans than on credit cards, reports the Federal
Reserve Bank of New York.
Students are borrowing twice what they did a decade ago after
adjusting for inflation, the College Board reports. Total
outstanding debt has doubled in the past five years - a sharp
contrast to consumers reducing what's owed on home loans and credit
cards.
Taxpayers and other lenders have little risk of losing money on
the loans, unlike mortgages made during the real estate bubble.
Congress has given the lenders, the government included, broad
collection powers, far greater than those of mortgage or credit
card lenders. The debt can't be shed in bankruptcy.
The credit risk falls on young people who will start adult life
deeper in debt, a burden that could place a drag on the economy in
the future.
"Students who borrow too much end up delaying life-cycle events
such as buying a car, buying a home, getting married (and) having
children," says Mark Kantrowitz, publisher of FinAid.org.
"It's going to create a generation of wage slavery," says Nick
Pardini, a Villanova University graduate student in finance who has
warned on a blog for investors that student loans are the next
credit bubble - with borrowers, rather than lenders, as the
losers.
Full-time undergraduate students borrowed an average $4,963 in
2010, up 63% from a decade earlier after adjusting for inflation,
the College Board reports. What's happening:
•Defaults. The portion of borrowers in default
- more than nine months behind on payments - rose from 6.7% in 2007
to 8.8% in 2009, according to the most recent federal data.
•For profit-schools. The highest default rates
are at for-profit schools that tend to serve lower-income students
and offer courses online. The University of Phoenix, the nation's
largest, got 88% of its revenue from federal programs last year,
most of it from student loans.
"Federal student loans are like no other loans," says Alisa
Cunningham, research chief at the Institute for Higher Education
Policy. "The consequences are so high for making a mistake."