Total student loan debt in the US is to break through the $1 trillion mark later this year, based on estimates by the Consumer Financial Protection Bureau. This comes after last year’s new record of $100 billion paid out in loans in a single school year. There is now more debt on students loans in the US than Americans have on credit cards, and while consumer credit card and home loan debt has been falling over the past five years, student borrowing has been moving rapidly in the opposite direction, doubling even after adjusting for inflation.
This debt, while being a relatively cheap way of borrowing money, cannot be erased by bankruptcy as Congress has given the lenders much more power than that given to credit card or mortgage lenders. So while there isn’t much risk of taxpayers and other student loan lenders losing the loan money there are fears that having the current generation start working life under such a large debt burden will create a drag effect on the economy. The housing market is an example of this effect, if graduates are paying out large sums each month towards repaying gigantic student loans then they won’t be saving for a down-payment on a new house. With more and more people going to college, graduates constitute a significant part of the first time buyers market, or at least they used to.
“It’s going to create a generation of wage-slavery,” Nick Pardini, a Villanova University graduate student in finance, told USA Today. Pardini has warned on a blog that the student loans will be the next credit bubble, with borrowers, not lenders, taking the hit.
The debt milestones are likely to be no surprise for those following individual stories of fee increases which all show reduced state funding passing on rising costs to the student. While the tuition fee increases and surge in student debt are palpable issues, it should be remembered that the rapid increase in total debt is also a result of more people attending college than before.