Originally published at Campus Progress.
More evidence of the depths of the student loan crisis surfaced this week when the Federal Reserve’s latest numbers revealed that student loans now account for more consumer debt than credit cards.
Outstanding student loans now total $829.785 billion -- about one third of the $2.4 trillion consumer debt in the United States, according to FinAid.org. For the first time ever, this number surpasses total credit card debt, which, according to the Fed, is now $826.5 billion, down considerably from its high point in late 2008.
The drastic numbers are causing some to wonder if the student loan crisis will be the next bubble to burst for the U.S. economy, especially given that default rates are at least 20 percent, according to the Chronicle of Higher Education (and potentially much higher, according to some sources).
“The growth in education debt outstanding is like cooking a lobster,” says Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, in an interview with The Wall Street Journal. “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”
The reasons for this increase in student debt are numerous. Tuition is rapidly rising past the rate of inflation and the unemployment figures, especially for recent college graduates are staggeringly high.
Further, as Campus Progress recently reported, since 2005 student loans have not been granted bankruptcy protection. This has saddled borrowers with life-long debt and has given the banks enormous leverage when negotiating repayments. For example, lenders will often settle at credit card debts at discounted rates, knowing that borrowers could otherwise declare bankruptcy. With private student loans, however, the banks demand the full balance plus interest in fees. Legislation exists in the House and the Senate that would add bankruptcy protections, but it remains to be seen if a bill will pass, and if so, what the specific language will look like.
The silver lining of this latest news is that it could bring desperately needed attention to this brewing economic disaster. Student Loan Justice, an organization that advocates on behalf of student borrowers, issued a statement in response to the new numbers that says “media coverage of credit cards exceeds coverage of student loans by a factor of approximately 15-to-1 based on unscientific news surveys conducted since 2007.”
Clearly, more media attention to student loan issues is warranted given the scope of the problem. “It is our hope that this issue will be exposed to the same level of media scrutiny as is given to credit card debt, and even subprime home loan debt, “ the statement continues. “It is only under the light of serious investigative journalism that this problem will be identified correctly, and solved appropriately.”
Indeed, with outstanding student loans now surpassing credit card debt and a huge chunk of these borrowers falling into default it is clear this crisis has become impossible to ignore.