New Figures Show Student Loan Debt Exceeds Credit Card Debt

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.

New Bankruptcy Legislation Could Provide Relief For Those Buried in Student Debt

Originally published in Campus Progress

New Bankruptcy Legislation Could Provide Relief For Those Buried in Student Debt

Legislation that would allow private student loans to be discharged in bankruptcy, could provide distressed borrowers with a fresh start and bring a major victory to those dedicated to student loan justice.

By Michael Corcoran
July 30, 2010

Valisha Cooks graduated from the University of Phoenix with loan payments that amounted to $1,150 a month, much of it in private loans. Her debt burden amounted to more than half of her take-home pay. “When I took out private student loans, I had no idea that I was condemning myself to a lifetime of ruined credit, harassment by collection agencies, and the hopelessness of endless debt,” she says at a recent hearing before Congress [PDF].

Cooks is one of an approximate 17 million who have private student loan, many of whom are trapped in mounds of student debt with little hope of repayment. The default rate for private student loans is officially 7.3 percent, although the reality is actually grimmer, since these numbers do not account for people who are in deferment or forbearance and are likely to default in the future. Normally, people who suffer under such massive debt can declare bankruptcy and discharge much of their debt burden, but in 2005 Congress passed bankruptcy legislation eliminating a student loan borrower’s option of last resort, discharging student loan debt in bankruptcy.

“Now, even though I have a good job, I can’t afford to pay all my bills in any one month, I go to food banks to feed my son, and I will never be able to afford a house,” she says. “I live in constant fear that the hammer will one day drop and ruin my life and the hope for my son’s future. It is a scary, hopeless feeling.”

It is to President Barack Obama’s credit that he has made student loan justice a priority so far in his presidency. The reforms he made as part of the reconciliation bill that passed healthcare reform in March—an expanded direct lending program, more relaxed methods of repayment, and increased Pell Grants—are some of most significant changes to help students fund higher education in decades.

But the new reforms, some of which do not go into effect until 2014, do not impact any of the millions of people who have already borrowed private loans to go to college. This leaves generations of former students struggling to keep their head above water as they deal with massive student loan debt in an era where college tuition has dramatically outpaced the rate of inflation for nearly 20 years and unemployment, especially for recent college grads, is at frightening levels. The Chronicle of Higher Education recently reported that 20 percent of student loans taken out since 1995 are in default (and some argue the number is higher). Private loans in particular, which are much less flexible than federal loans with repayment schedules and deferments, are often a major reason for the high default numbers. This is why both houses of Congress have introduced legislation that would once again allow private student loans to be discharged in bankruptcy (S. 3219 and H.R. 5043).

Read the rest here.