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US Student Loan Debt tops $1 Trillion
The amount Americans owe on student loans is far higher than earlier estimates and could lead some consumers to postpone buying homes, potentially slowing the housing recovery, U.S. officials said Wednesday.
Total student debt outstanding appears to have surpassed $1 trillion late last year, said officials at the Consumer Financial Protection Bureau, a federal agency created in the wake of the financial crisis. That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.
The new figure?released Wednesday at a banking conference in Austin, Texas?is a preliminary finding from a study of student debt that the bureau plans to release this summer. Bureau officials said the estimate is based on a survey of private lenders, as opposed to other estimates that rely on a sampling of consumer credit reports.
CFPB officials say student debt is rising for several reasons, including a surge in Americans going to college in recent years to escape the weak labor market. Also, tuition increases?which many colleges say are needed to offset big cuts in state funding?have many students taking out bigger loans.
In addition, the interest costs on older loans are climbing as borrowers fall behind on payments, reflecting mounting financial strains, bureau officials said. New York Fed data show that as many as one in four student borrowers who have begun repaying their education debts are behind on payments.
Economists say college is an increasingly good investment because of the widening pay gap between jobs that require a degree and those that don't. Ultimately, the educational degrees and added skills are meant to help workers earn higher incomes that, in time, will more than offset the student debt.
But as more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, U.S. officials and economists say. It could take longer for heavily indebted graduates to save money for a down payment on a home, or it could be harder for them to qualify for mortgages.
Rohit Chopra, student-loan ombudsman for the Consumer Financial Protection Bureau, said student debt could ultimately slow the recovery of the housing market. "First-time home-buyers are a substantial part of the housing market," Mr. Chopra said in a speech at the banking conference in Austin. "Instead of saving for a down payment, these borrowers are sending big payments every month."
Student debt is a burden not just for recent college graduates in their 20s but also parents, who often co-sign their children's student loans, as well as midcareer professionals who opted to go back to school during the sluggish recovery.
David Johnson, a 58-year-old groundskeeper from Milton, Wash., decided to leave gardening after more than two decades to become a nurse. Two years ago, he took out about $18,000 in private and federal loans to attend a local community college that had a nursing program. After completing prerequisite classes, he learned that the program had a waiting list. With no guarantee of getting into the nursing program, he is wondering whether to take out more debt to continue in school.
"It's an awkward place to be. I'm not yet a nurse but I've got all this debt and interest compounding on me," he said. "I don't have a lot of working years left and I'm saddled with this debt."
Re: US Student Loan Debt tops $1 Trillion
This is such a hard thing to evaluate. Yes, the pay gap between those with degress and those without degrees is growing, but the ROI for those with degrees is shrinking. Wages aren't keeping up with student loan debt levels, so each year's graduates have a little less than the previous year's to spend on other things.
A former boss of mine told me how he paid off his law school loans in 6 months by living in his parents' basement. If I been able to sign over my gross salary to the student loan company, it still would've taken me more than 3 years to pay off my loans.
I recognize that economic prospects are still overall better for college grads, but it's hard to say whether it's an increasingly good investment. Maybe increasingly necessary is more accurate.
1. Stupid question, and maybe I missed it, but it says it is based on a survey of private lenders. Does that mean it doesn't include federal loans?
2. I know Rohit! We worked on the 2008 campaign together. He is super.
i would be inclined to agree with Bridey - that a college education is increasingly necessary as opposed to offering a good ROI. I think of course it largely depends on the field of study, but most entry-level jobs these days require a basic college education.
Its extremely concerning regardless the amount of student debt that people have - not only does it impact the ability to purchase a house but also the ability to save for retirement, kids funds, etc.
I would like to see substantially stronger restrictions on educational loans (ie tie them to employment rates in field of study, etc) but that wouldn't be feasible without hurting the students unless there were increases in scholarships & grants.
This is insane.
I'd say it's about time we stop lamenting about how teenagers and people in their 20s took on way more SL debt than they should have, because it's clear that this is a problem that will affect this country for years to come if nothing gets done about it. When younger generations don't have as much buying power as previous generations, that affects everyone. SLs should not be entirely forgiven, but why not allow for, say, more flexible refinancing of loans?
Also, as has been said ad nauseum on this board, sh!t will continue to hit the fan as long as college costs keep rising dramatically.
<a href="http://www.thenest.com/?utm_source=ticker&utm_medium=HTML&utm_campaign=tickers" title="Home DYup.
Here's another article on it
http://community.thenest.com/cs/ks/forums/thread/64034123.aspx
They did a study where they researched the previous assumption that the rate was 10%. Here's how they got to it:
The New York Fed said the past-due balances on student loans amounted to $85 billion, or about 10% of the total owed. The same 10% rate applies on average to other types of consumer delinquent debt, such as mortgages and credit cards.
But Fed researchers said delinquency figures for student loans understate the magnitude of the problem. That's because the calculations don't take into account that federally guaranteed loans, which make up the bulk of student debt, typically don't require repayment while borrowers are still in school and for six months after graduation.
If those who are temporarily exempt from making payments are excluded, the report said, the number of borrowers with past-due balances would jump to 27% of the total. And the outstanding balances that are late would rise to 21%. Both figures are about double the unadjusted rates.
Ben Bernanke's son is going to owe more than $400,000 in student loans?!? No wonder he is keeping interest rates low! When is that dude graduating - that will tell us when the Fed is going to unleash the dogs.
The problem is that student loan debt isn't dischargable in bankruptcy, or anything else. THe housing bubble burst and people lost all their homes, but when the student loan bubble bursts - and it will - the students are still on the hook for the horrific amount of debt they've been saddled with.