Student Loans Now Outpace Revolving Consumer Debt
While many students were enjoying their summer vacations
, something unusual happened: The amount of student loan debt overtook the amount of consumer debt for the first time in history. According to the Federal Reserve, outstanding student loans in June reached the $830billion mark. In comparison, revolving consumer debt comprised mostly of credit card balances was $826.5billion.
The federal government backs the majority of outstanding student loansabout $665billion, based on about $605billion allocated in the current fiscal year's budget, combined with almost $60billion in additional stimulus money earmarked for student loans. According to FinAid.org, outstanding non-federally backed
private student loans account for the remaining $168billion in student loan debt. Mark Kantrowitz of FinAid.org says his estimates are conservative, and the total value of private student loans could actually be substantially higher.
More People Returning to College and College Loans
To be fair, many factors are at work to explain this shift in national debt levels. At its peak in the fall of 2008, U.S. consumer debt reached nearly $1trillion. Since then, confronting a weak economy, stagnant wages, and an epidemic of foreclosures, U.S. consumers have made a concerted effort to reduce their outstanding consumer debts and have succeeded in retiring about 15percent of their revolving credit balances.
At the same time, the need for college loans has gone up as more people, left unemployed by the current recession, return to college or enter college for the first time. According to the U.S. Department of Education, college enrollment increased by 14percent between 1987 and 1997. By comparison, college enrollment increased by 26percent between 1997 and 2007, and full-time students represented the majority of the growth in enrollment. The
National Center for Education Statistics predicts that between 2006 and 2017, enrollments for students over the age of 25 will increase by nearly 20percent.
Rising Cost of College Contributes to Increase in Student Loans
The cost of higher education continues to rise faster than the rate of inflation and has risen more than twice as fast as U.S. household income since 1970. The Higher Education Price Index (HEPI), a predictive measure of the costs of higher education, showed that the inflation rate for higher education in 2009 was 2.3percent 64percent higher than the overall consumer inflation rate of 1.4percent.
Public higher education institutions are becoming less affordable over time. According to the HEPI, costs at public, four-year institutions have risen faster than costs at private and two-year schools. This divergence is significant since, over time, this trend, if it continues, will eat away at the cost advantage four-year public institutions currently hold over private schools and will gradually eliminate lower-cost options for lower- and middle-income students who wish to attend college.
Federal Financial Aid Fails to Keep Pace With College Tuition
Over time, the distribution of federal financial aid has shifted from grants to student loans. According to the 200809 year-end report on federal Pell Grants, slightly more than half of the 16.4million Pell Grant applications received by the U.S. Department of Education were eligible for funding. In comparison, the Education Department routinely received 65percent or more eligible Pell Grant applications in the 1980s. Beginning in the mid-1990s, the percentage of Pell Grant applications eligible for funding dropped into the 50- to 60-percent range, and by the 200506 and 200607 academic years, fewer than half of the Pell Grant applications submitted to the Department of Education were deemed eligible for funding.
The average Pell Grant award remains stubbornly low: As of the 200809 academic year, the average Pell Grant award has never exceeded $3,000 in any given year.
At the same time, lending caps for student loans issued through the federal Stafford Loan program have risen. Currently, eligible undergraduates can borrow up to a lifetime maximum of $23,000 in subsidized Stafford student loans and up to a total of $31,000 in both subsidized and unsubsidized Stafford loans.
Alongside this shift, federal limits on student grants and student loans have not kept pace with the
cost of a college education. In a recent issue, U.S. News and World Report estimated that the average annual cost of attending a four-year private, non-profit institution was $35,000; the annual cost of attending a four-year public institution was nearly $20,000. These figures mean that a student who qualifies for the maximum cumulative undergraduate Stafford student loan award would still need to come up with between $50,000 and $110,000 in additional financial aid in order to complete a four-year degree at a U.S. higher education institution.
In the face of rapidly rising higher education costs and federal financial aid that has not kept pace with either the growing number of financially needy applicants or the need for more assistance per applicant, many students are turning to private student loans to fill in the financial aid gaps. Most private student loans can tend to carry higher interest rates than federal student loans, which in part accounts for the growing student loan debt in the United States.
Student Loans Now Outpace Revolving Consumer Debt
By: Jeff Mictabor
Loan Modification Refinance - Easy Way To Stop That Adjustable Rate Mortgage Instant Payday Loans Get Quick Finance For Your Needs Reduce Mortgage Payments - Put A Stop To That Adjustable Interest Rate And Put Thousands In Your Bank Ways To Stop Foreclosure - Put An End Foreclosure And Lower Your Mortgage Payments Holiday Loans - Enjoy Cherish Able Moments Without Financial Hassle Installment Loans- Avail Money Without Extra Burden Get An Instant Loan Through Overnight Payday Loans Same Day Loans No Faxing- Quick Assistance In Few Hours Time Defaulted Student Loan Help Alternatives For Settling The Loan Problems Payday Loans: Ideal For Short Term Needs Fax Less Payday Loans For Your Lengthy Procedures Payday Loans-avail Finance At Your Suitability Fast Payout Loans-for Fast Financial Assistance