Student Debt in the U.S. Continues to Blow Up
by Philip Pilkington/ Naked Capitalism/ March 9, 2012
Perhaps the most obvious indicator that the US has become a society of debtors is the ever-expanding market for student loans. Recently clocked at $870 billion and rising quickly, this market has been a focal point for the recent Occupy movements. The White House knows that this is a key issue among potential voters and recently tried to provide some relief to debtors by placing a cap of 10% of discretionary income on the repayment of such loans – down from a previous cap of 15%. But of course placing a cap on how much needs to be repaid is hardly a solution to what appears to be a much larger problem.
Student loans are growing at a remarkable rate. Between the second and third quarter of 2011 they grew from an estimated $852m to an estimated $870 billion – that’s an increase of 2.1% in only one quarter; and this while other types of consumer debt either declined or remained flat. And even these estimates are pretty fuzzy because, as the New York Fed highlights, the market is highly complex and difficult to gauge:
Student loans support the education of millions of students nationwide, yet much is unknown about the student loan market. Relevant data are limited and, for the most part, anecdotal. Also, sources tend to focus on recent college graduates and do not reveal much information about the indebtedness of parents, graduate students, and those who drop out of school.
The rapid expansion of student debt appears to be due in large part to the increasing numbers of Americans enrolling in third-level (what Americans call “advanced”) education. This is not surprising given the slack and therefore highly competitive jobs market that doesn’t appear to be going away any time soon.
The market for student debt has also become remarkably complex. Again, the New York Fed gives us the details:
Unlike other types of household debt such as credit cards and auto loans, the student loan market is incredibly complex. Numerous players and institutions hold stakes at each level of the market, including federal and state governments, colleges and universities, financial institutions, students and their families, and numerous servicers and guarantee facilitators.
Unsurprisingly, the burden of this debt – at least, that which is counted – is falling on the shoulders of the young, as the chart below indicates.
Delinquency rates are already high and appear to be rising. Previous calculations indicated that some 10% of those with student loans should be considered delinquent. But due to the complexity of the market this is probably far too conservative an estimate and recent calculations by the New York Fed indicate that the actual figure is probably closer to 21%. That’s pretty whopping by any standard. (Continued)
Read the entire article at Naked Capitalism
Philip Pilkington is a writer and journalist based in Dublin, Ireland.