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Why You Should Be Concerned About Student Debt

For the first time in history, total student loan debt has now equaled total credit card debt, according to the Federal Reserve Bank of New York, and the U.S. Department of Education. Some speculate that total outstanding student loan debt could rise to as much as $1 trillion, with up to $1 billion borrowed this year alone.

Those are enormous numbers, and are resulting in a big impact on the economy, and a big impact on the lives of students and parents. Students now start their lives immediately deep in debt, forced to indefinitely delay purchases, including buying a car or home. They are even delaying marriage, and starting families. More adult children are living with their parents for a much longer time. The burden is on parents, too, who may have cosigned a student loan, or who are still supporting their adult children.

And it’s not affecting only those students in college for the first time. Workers trying to get retraining, or professionals looking to add a degree to make themselves more employable are also borrowing for their education and additional training. For-profit schools utilize the most student loans, and have the highest loan default rate.

Why has student debt risen so dramatically?

Students are borrowing more, 63% more, than only a decade ago. The percentage of student loan borrowers more than nine months behind on payments rose from 6.7 percent in 2007 to 8.8 percent in 2009, and continues to increase.

College tuition costs have risen faster than the rate of inflation—between 25% and 37% or even more for some institutions. Tuition has increased because federal and state subsidies to colleges have been greatly reduced; and administration, property maintenance, technology, and security costs have increased.

Student loan debt is structured differently than consumer debt, and cannot be discharged during bankruptcy. In 1998 federal students loans were restricted from inclusion in bankruptcy discharges, and in 2005 private student loans were also restricted. Unlike all other debt, for student loans, once it’s borrowed, it’s owed for life.

The increasing burden of student debt, combined with other debt, impairment of income, dissolution of savings, and unstable and difficult job market, combines like a perfect storm to keep the economy from recovering.

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