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Although these times of low job security and financial caution keep consumers reining in credit card debt and day-to-day expenses, the current economic climate may have the opposite effect on education-related spending.
Credit card debt has contracted considerably over the past eighteen months, dropping 13.3 percent from its 2008 high of $958.1 billion. Consumers’ revolving credit, largely a measure of credit card debt, dropped $4.5 billion in June alone, according to the Federal Reserve’s monthly report on consumer credit.
With the almost two-year decline in credit card debt—whether due to pay-offs or charge-offs—consumers’ outstanding balances on credit cards in June fell below the amount owed on student loans. According to Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, Americans now owe $829.8 billion in student loans, compared to approximately $826.5 billion in credit card debt. An estimated $300 billion of those student loans have been incurred within the last four years alone.
Why the sharp increase in student loans? The rise likely reflects both the rise in education expenses, as well as the fact that more Americans may choose to borrow money to go to school, rather than be unemployed in today’s tight economic environment,. In addition, since credit cards often carry higher interest rates, most consumers choose to pay off card debt before any type of loan, particularly student loans.
While investing in education to increase one’s income-earning capacity generally speaking is a positive, some consumer advocates express concern about the sharp rise in outstanding student loans. Unlike credit card debt, mortgage loans, and other types of borrowing, student loans are not subject to fair-lending or consumer protection practices. Student loans stay with a consumer even if he or she or he files for bankruptcy. None of the typical protections, like statues of limitations, truth-in-lending laws, or even state usury laws apply to student loans. As a result, student loans can be an intractable form of debt that will continue to weigh down borrowers for a long time. Unfortunately, a rising number of consumers are experiencing firsthand the dangers of getting saddled with student loans that they will be spending decades of their lives paying off.
