November 30, 2012
Student debt levels have reached a new high – rising $42 billion in the last quarter to $956 billion, according to a report this week from the New York Fed. At the same time, tuition rates have seen a staggering 72 percent increase since 2000.
As
if those two upward trends weren’t hitting students hard enough – the
average earnings for full-time workers ages 25-34 with Bachelor’s
degrees has also dropped 14.7 percent since 2000. The chart below from
Citi shows the striking contrast:
The
diverging trends are taking a toll on students and recent grads.
Student loan delinquency rates now exceed those of credit card,
mortgage, and all other types of consumer debt. And many indebted grads
are being forced to delay buying homes, having children and saving for
retirement.
While President Obama has supported increasing the
availability of student loans, others are questioning if student loans
are becoming too easy to obtain, putting those who have no hope of paying off the loan into crushing life-long debt.
Most
student loans – 93 percent last year – are currently made by the
government, and Stafford loans (which account for more than
three-fourths of federal loans), impose no credit standards. Over 20
percent of Stafford loans go to undergraduates enrolling in for-profit
colleges, which have default rates that are nearly twice as high as
other institutions.
The situation is causing many experts to warn of a student loan bubble that could burst much like the housing market did in 2008. Howard Dvorkin, author of Credit Hell, told The Fiscal Times
last month: “It's hard to predict when the student loan meltdown could
occur, but if the bubble explodes, the consequences will be devastating
for the economy.”
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