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US student loan debt – a heavy load, and growing

March 2012 saw several efforts to put the student loan situation in the United States into perspective. And regardless of the angle taken by the various analyses, the picture is quite daunting.

Early in the month, the Federal Reserve Bank of New York (FRBNY) posted an entry titled “Grading student loans” on its blog, Liberty Street Economics. These data suggest that the total student loan balance grew by 2.1% between these second and third quarters of 2011, from USD 852 billion (EUR 641 billion) to USD 870 billion (EUR 655 billion). Interestingly, during the same timeframe, “other types of consumer debt [such as credit cards and auto loans] declined or remained flat”.  The FRBNY’s analysis takes pains to point out that the student loan debt is distributed quite unevenly across age groups, with some 67% of the aggregate total owed by borrowers under 40 years of age. The average outstanding student loan balance per borrow is USD 23 300 (EUR 17 500), with about 25% of borrowers owing more than USD 28 000 (EUR 21 000) and approximately 10% owing more than USD 54 000 (EUR 40 600).

The FRBNY further notes that ongoing growth in demand for access to higher education is likely to strain lenders and expand the numbers of indebted students. This is of particular concern given that the FRBNY analysis also suggests that some 27% of borrowers in the repayment phase of their loans have “past due” balances (i.e. are behind by at least one payment). This is significantly higher than what is seen in the other US household debt categories, where some 14.4% of borrowers are in a past due situation.

Meanwhile, on 21 March, the US government’s Consumer Financial Protection Bureau (CFPB) posted an entry on its blog, under the title “Too big to fail: Student debt hits a trillion”. CFPB estimates that the national student debt levels (taking into account both federal and privately backed loans) “hit the trillion dollar (EUR 752 billion) mark several months ago”. Major concerns voiced by CFPB include the fact that growth in the overall debt is being driven not only through the issuance of new loans but also through the increasing indebtedness of existing borrowers who cannot keep up with interest payments. The implications for the broader economy, says the CFPB, are sobering.

And what do the borrowers themselves think about all of this? The Chronicle of Higher Education reports that a coalition of student groups and their allies presented 130 000 letters to Congress in mid-March calling for a block of the planned jump in the federal student loan interest rate from 3.4% to 6.8%. This change is due to take effect automatically on 1 July if Congress does not act to stop it. More broadly, budget negotiations are underway for the 2013 federal budget. Matters related to federally-backed student loans, funding levels for the Pell student grant programme and other items of central importance to student financial support, are sure to be hotly debated in the coming months.

Federal Reserve Bank of New York (FRBNY) Consumer Financial Protection Bureau (CFPB) The Chronicle of Higher Education