Student-Loan Debt Tops $1 Trillion

March 26, 2012

The ballooning of student loan debt is causing uneasiness among many lenders, and the inherent uncertainty in attempting to assess the exact amount of debt compounds this feeling.  Yet a recent reexamination of crucial loan data suggests that the national level is likely much higher than previous estimates, says the Wall Street Journal.

  • The Consumer Financial Protection Bureau (CFPB), a federal agency created in the wake of the financial crisis, recently stated that total student debt outstanding appears to have surpassed $1 trillion late last year.
  • This estimate is roughly 16 percent higher than an estimate earlier this year by the Federal Reserve Bank of New York.
  • The differential in the two estimates comes from the input data used: while the Reserve Bank used a sampling of consumer credit reports, the Bureau surveyed private lenders.

CFPB officials, who will release the official report regarding the estimate this summer, have pointed to a number of conspiring factors that have contributed to the ballooning of student debt:

  • Over the long term, more students are attending college than in previous years.
  • This broad trend is compounded by the fact that numerous workers have left the labor market in response to the recession in order to return to school.
  • Additionally, postsecondary education institutions across the country are consistently raising their tuition faster than inflation.
  • Finally, as more students fall behind on payments, interest rates climb and more money is owed on interest.

The bubble-like nature of the student lending market could have broad implications for lenders and borrowers alike.  Additionally, the high debt level will carry serious consequences for the economy as a whole.

  • Because students (and parents who have cosigned on student loans) are allocating large portions of their income to payments, they cannot save money for large expenditures like mortgages.
  • Additionally, students that have interest in buying a home can face credit rating obstacles from student loans.
  • These factors can conspire to further undermine confidence in an already-fragile housing market.

Source: Josh Mitchell and Maya Jackson-Randall, "Student-Loan Debt Tops $1 Trillion," Wall Street Journal, March 22, 2012.

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