GO
Loading...

Enter multiple symbols separated by commas

Student Loan Debt Hits Record Levels

student_loan2_140.jpg

Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers.

The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.

Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.

Taxpayers and other lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection powers, far greater than those of mortgage or credit card lenders. The debt can't be shed in bankruptcy.

The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

"Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children," says Mark Kantrowitz, publisher of FinAid.org.

"It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

Full-time undergraduate students borrowed an average $4,963 in 2010, up 63% from a decade earlier after adjusting for inflation, the College Board reports. What's happening:

•Defaults. The portion of borrowers in default — more than nine months behind on payments — rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal data.

•For profit-schools. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation's largest, got 88% of its revenue from federal programs last year, most of it from student loans.

"Federal student loans are like no other loans," says Alisa Cunningham, research chief at the Institute for Higher Education Policy. "The consequences are so high for making a mistake."

This story first appeared in USA Today.

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

U.S. Video

  • Hero miles for military members: Real estate magnate's plea

    Chairman of the Fisher House Foundation, Ken Fisher, discusses the Hero Miles program with CNBC's Dina Gusovsky. During Military Appreciation Month, Fisher is asking every traveler to donate 1,000 of their miles to replenish the Hero Miles programs that is in danger of running out.

  • Cramer shuts down this market's haters

    "Mad Money" host Jim Cramer on why this market can't stop, won't stop.

  • From the battlefield to the boardroom

    Your Grateful Nation is dedicated to helping Special Forces veterans enter the corporate world and Knot Standard provides complimentary suits to vets. Mad Money's Jim Cramer spoke with Rob Clapper, Your Grateful executive director; John Ballay, Knot Standard co-founder and president; Tej Gill, retired U.S. Navy Seal; and Darren McB, active duty U.S. Navy Seal.