Bankruptcy

Student Loans Now Greater Than Credit Card Debt

By Bob Lawless

Total outstanding student loan debt now exceeds credit card debt, as reported yesterday in the Wall Street Journal which in turn elaborated on a web article by Mark Kantrowitz, publisher of FinAid.org. Revolving consumer credit according to the Federal Reserve is $826 billion. Kantrowitz calculates outstanding student loan debt at almost $830 billion.

The Federal Reserve does not separately report student loan debt--and why not? Instead, the Federal Reserve rolls student loan debt into nonrevolving debt along with auto loans and other installment loans. Thus, Kantrowitz has to rely on other sources. For public student loan debt, Kantrowitz does his calculations off an analysis of the federal budget, and for private student loan, Kantrowitz relies on a model he has developed. He estimates there is $605.6 billion outstanding in federal student loans and $167.8 billion outstanding in private student loans.

Credit card debt actually has been declining, an unprecedented fact historically, and is off almost 14% from its 2008 high of $958 billion. Other forms of credit have been tight and hard to obtain. In contrast, Kantrowitz's numbers suggest student loan debt has been increasing.

All of these facts suggest more answers than questions for me. Should we be concerned as a policy matter about rising levels of student debt, or is this just an indication of a populace investing in human capital during a financial downturn? Are growing levels of student loan debt sustainable? If not, what are the implications for universities (and, gasp, law schools)? Did the 2005 changes to the bankruptcy laws that made most private student loan debt nondischargeable contribute to growing student debt (in that private lenders were more willing to lend with the belief that student borrowers would not discharge their debt)? Among the facts to consider is another recent post of mine about a report on high student loan default rates.

Full post as published by Credit Slips on August 11, 2010 (boomark / email).