511% Growth in Student Loans from 1999 to 2011

New York Federal Reserve data shows student loan debt has grown by 511% since 1999.

The growth in student loans over the past decade has been truly staggering, writes Daniel Individlio at the Atlantic.

In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

As explained in an article by Andrew Hacker and Claudia Dreifus American colleges are facing an unprecedented student debt crisis.

Over the same period, housing-related debt had increased threefold. Meanwhile, the balance of student loans grew by more than six times.

The reason for this vast increase could be availability. The government’s backing lets credit to students flow very freely. Universities are also raising tuition aggressively since students are willing to pay more through those loans, writes Individlio.

“All this college debt could put the U.S. on a slower growth path in the years to come. As Americans grapple with high student loan payments for the first few decades of their adult lives, they’ll have less money to spend and invest. All that money flowing into colleges and universities is being funneled away from other industries where it would have been spent in future years. Of course, this would be a rather unfortunate irony: higher education is supposed to enhance a nation’s growth, but with such an enormous debt burden, graduates might not be able to spend and invest enough to allow that growth to occur.”

Despite the passage of the Budget Control Act of 2011 this summer, thousands of debt-ridden graduates may face even higher interest rates triggered by the uncertainty surrounding the country’s credit, writes Amanda Seitz at The College Fix.

Lenders in the private industry could decide to up interest rates soon, Moody’s Director of Consumer Credit Analytics Chris deRitis estimated. Earlier in August, he’d heard private student loans rates could increase anywhere from a quarter of a percent to a whole percent.

“It could be instantaneously,” deRitis said. “Private lenders are now reacting to all sorts of market conditions and events.”

The looming credit uncertainty may create costly issues for students seeking loans, FinAid.org and Fastweb.com publisher Mark Kantrowitz said.

“The investors are much more acutely aware of the possibility of a future default, especially given the last minute nature of the legislation,” Kantrowitz said of the debt ceiling deal reached in August.

Federal student loans aren’t immune to possible increases either; costs for future generations could be impacted, writes Seitz.

“The expectation (with credit downgrades) is that borrowing costs would go up,” deRitis said. “Congress, at that point, would say ‘our borrowing costs are higher and we’re going to charge students.’”

“Students are going to be squeezed,” Kantrowitz said. “It’s part of a long-term trend towards decreasing college affordability.”

It’s a trend that even long after graduating from college, Goehring is unsure of how he’ll afford.

“The most stressful thing is when you add it all up, it’s really overwhelming to look at all you have to chip away at,” Goehring said. “You ask: ‘how am I going to pay this off? If they add interest rates, it will take even longer.”

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August 30th, 2011

Staff Reporter EducationNews.org

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