Student Loans

Students in America are borrowing money by using their credit cards, mortgages, student and car loans. Borrowing more money does not look like a good idea, but it is actually a good indication for the US economy. It means Americans aren’t hoarding their money, but spending it which should possibly improve the economy. It’s also good news that a smaller portion of today’s total debt is in some form of delinquency, meaning more bills are being paid on time. That’s true for just about every form of debt except student loans. The total outstanding student loan balance is $1.08 trillion, out of which 11.5% of it is 90+ defaults. That’s the highest default rate among all forms of debt and the only one that’s been on the rise consistently since 2003.

Student Loans

The nonpayment rate on student loans is higher than that on credit cards, mortgages, and auto loans, which have all seen a reduction in late payments. The nation’s monetary problems compelled many people to make greater efforts toward paying off existing debt.

Low-interest rates helped most Americans refinance mortgages and pay off credit card debt. While those debt levels slowly improved, student loan troubles have worsened. The size of the average student loan in 2005 was $17,233. By 2012 the average U.S. student loan debt climbed to $27,253 which is a 58% increase in just seven years.

Rising Cost

The rising cost of education is a major reason, but the relationship between lenders and student borrowers is particularly worrisome.

Students without much of a credit score or credit history are being approved for thousands of dollars in loans by lenders because they will pay it back after earning a college degree.

The wake-up call occurs after graduation when many students realize their loan debt exceeds any annual salary they can earn–if they can find a job.

Graduating from college ends up feeling like more of a burden which is why many students say they would have been better off working, instead of going to college on borrowed money and paying tuition.

The student loan problem creates greater problems for the US economy than the housing problem.

Student borrowers are delaying major life decisions, like buying a home or car, due to their student loans. The rate of home ownership is 36% less among those currently repaying student debt, and unlike other debt, most student loan debt can’t be written off in bankruptcy.

Some regulators are starting to pay attention. The Consumer Financial Protection Bureau has received thousands of complaints about how student loans are affecting consumers. Banks compared the student loan environment to the “broken mortgage market before the crisis” and said his agency is watching it closely.