Next Financial Danger: Student Loans

November 28, 2012
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As the country slowly repairs the damage from years of easy credit for mortgages and credit cards,  a new financial danger looms: student loans.

In an insightful Wall Street Journal story today, the newspaper said that while overall household borrowing fell in the third quarter this year, student-loan debt instead rose by 4.6 percent to $956 billion.

Not only is the size of the debt growing, so are the students and their parents who are falling behind making their payments.

“Payments on 11% of student-loan balances were 90 or more days behind at the end of September, up from 8.9% at the end of June, a rate that now exceeds that for credit cards. Delinquency rates for all other consumer-debt categories fell or were flat,” wrote the WSJ.

The problem, predicts the newspaper, is going to get worse, both for the federal government and for the students as well as for their parents who co-signed the loans.

Almost all the newer students loans are now made directly by the federal government, with hardly any questions asked.

It is similar to the what happened in the housing market seven years ago when almost anyone could get a mortgage regardless of their ability to repay.

In the case of student loans the government asks few questions about students’ ability to repay the loans nor does it ask what career the student is pursuing to see if there are going to be well paying jobs available.

The WSJ blames the problem on the Obama administration’s push to get as many students into college with the hope they will be able to obtain better paying jobs with college degrees.

 

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