Student-Loan Debt Surpasses Credit Cards

Consumers now owe more on their student loans than their credit cards.

Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from theFederal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today — both federal and private — total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

“The growth in education debt outstanding is like cooking a lobster,” Mr. Kantrowitz says. “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.”

By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.

Partially, this is a story about Americans paying down credit card debt. Some are seeking a new frugality, but many credit card companies are raising minimum monthly payments or cutting off new and existing lines that consumers in the past may have turned to during tough times. Revolving credit, the majority of which is credit card debt, reached a high in September 2008 of $975.7 billion, according to Fed data. A consumer who juggles both credit-card and student-loan debt is likely to pay of the credit-card first, as that debt tends to carry a higher interest rate.

In terms of volume, a person is likely to borrow more money to go to school today than, say, spend on necessities using a credit card during a patch of unemployment. Tuition at public and private four-year universities last year went as high as $26,000, with additional fees for housing and books not showing any signs of letting up either. It’s no surprise that many parents, reeling from the downturn, would turn to borrowing to make up the difference. With the cost of education increasing rapidly and the duration of unemployment increasing, perhaps the surprise is that this turning point didn’t hit earlier.

Student Loan Justice, a Washington State-based student loan advocacy group issued a statement on the student-loan eclipse, estimating that media coverage of credit cards exceeds coverage of student loans “by a factor of approximately 15-to-1 based on unscientific news surveys conducted since 2007.”

But student loan debt, in many ways, is different than credit-card debt. These loans typically can’t be discharged in bankruptcy. They have different repayment terms, some of which can catch some have heavy consequences for borrowers who miss payments and borrowers’ families.

http://blogs.wsj.com/economics/2010/08/09/student-loan-debt-surpasses-credit-cards/

Student loans - the next "mortgage meltdown" crisis?

CHARLOTTE, NC (WBTV) - An entire generation of today's college graduates are facing financial ruin, unable to climb out of a debt cycle started by high-interest student loans.

Their job perspectives are grim, and, in many cases, their interest rates are outrageous.

Could this be the country's next "mortgage meltdown?"

A college degree used to be one of the keys to success - access to the American Dream.

Then again, so did homeownership.

But, as a nation, we have $700 billion in student loan debt, and one in five people can't make their monthly payments.

It's a problem that could devastate the workforce, because there's a large class of educated workers out there with massive dents in their credit, something potential employers are monitoring more closely.

That truth almost ruined Bob Dickie.

Dickie, 54, once had the typical American mindset - he thought getting a college degree would be like getting a new lease on life, and that paying for it was easy as filling out a student loan application.

"The school promises the world to the student," he says. "You're going to make a great living, you're going to launch your career. All the stuff you see on TV."

So he went...and graduated in a recession.

Dickie managed to get a job, but he wasn't making anywhere near what he needed.

"The pay was $10 an hour," Dickie says. "So paying rent and commuting 50 miles one way, there was just absolutely nothing left."

But skipping student loan payments crumbled his credit.

"I mean, I had all the luxuries of upper middle class. Brand new cars, health care membership, home, I was used to the good life," he says. "After this experience, it just kind of tanked out."

Dickie's partner, Angela Money, tried to negotiate with his lender.

"They were very threatening to us," she says.

And Money says they wouldn't help by lowering payments. In fact, they hiked the interest rate. Dickie's debt just kept getting bigger.

Eventually, he managed to pay the loan off, but it still haunts him.

"Now, our battle is, we can't get it off his credit report," Money says.

"It can become a downward spiral," Dickie adds. "Because now employers are using your credit rating to see if you are a good candidate for employment."

"It's a Catch-22," adds Money. "So how can people do better and progress when things like this are happening?"

It's exactly the kind of question the country asked during the mortgage meltdown.

http://www.wbtv.com/global/story.asp?s=12909902