Saturday, March 3, 2012

The rapidly growing student loan problem

The mounting debt from student loans is quickly becoming a national problem in the US. The statistics are staggering.
The Huffington Post: Bernanke's son's case is a high-profile example of what is a nationwide epidemic: mounting debt from student loans. College graduates from the class of 2010 carried an average of $25,250 in student loan debt, and the nation's total student debt almost reaches $1 trillion: This is a 14-fold increase from 15 years ago and dwarfs the country's credit card debt, which is just shy of $800 billion.
But what's more alarming is that over a third of that is funded directly by the federal government. The chart below (from the Fed) shows the growth in student loans held by the US government. In fact the bulk of the growth in consumer credit we've seen recently comes from these increases in federally held student loans.

Student Loans Held by the Federal Governemnt

The borrowers under these federal programs qualify for Income-Based Repayment, a system that allows repayment over an extremely long period of time - similar to a mortgage but with no assets to back it up. There are also provisions that allow for partial principal forgiveness.

Up-to-date student loan default rate data is hard to come by but the trend is not good.

Source: The NY Times
Student loans are a growing issue at the national level in the US. With the federal government involved to such an extent (and the involvement increasing rapidly), the risks to the economy and particularly to the tax payer of these lending programs going terribly wrong are becoming quite real.

Update: here is an interesting perspective on the issue of student loans from someone who is a borrower.
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