Student loans overtakes credit debt

(FOX Providence) - A surprising series of reports from the Federal Reserve Bank and an expert who tracks student loan debt suggest came out last week. These reports suggest that for the first time, student loan debt in the United States is actually greater than credit card debt. Here to talk about this development and what it means for students is Peter Kerwin from the Rhode Island Higher Education Assistance Authority .

We’ve heard a lot of talk about the staggering levels of credit card debt in this country but no one really expected student debt levels to catch up this quickly, did they?

This is a real shock and it highlights the need for policy-makers and the higher education community to do something about the problem. The Federal Reserve issues what they call the G19 report, which shows the level of revolving credit, most of which is credit card debt. Americans currently owe about $825 billion in credit card debt. The latest student loan estimates, provided by Mark Kantrowitz at FinAid.org and FastWeb.com, show the level of national student loan indebtedness to be at about $830 billion.

In a Wall Street Journal story, Kantrowitz likened the growth in education debt to cooking a lobster. The debt levels have been increasing slowly, but steadily so that by the time you notice the water is boiling, you’re already cooked.

No one expected this to happen so quickly. Most people who track this expected student debt levels to overtake consumer credit card debt several years from now. Part of what’s happening is consumers tightening their belts in this tough economy, reducing spending and trying to pay down credit card debt. You also have the big credit card companies raising their monthly minimum payments and cutting off new or existing lines of credit.

What does it mean for students?

The media coverage over the last few years has been on the issue of credit card debt. The folks at StudentLoanJustice.org suggest that for every story about student loan debt, there are 15 media accounts about credit card debt. Hopefully, these new reports will start to shift that focus and get people thinking about how they look at student loans.

Keep in mind, credit card borrowers enjoy a range of consumer protections which are simply not in place for student borrowers who rely on private loans. There’s no bankruptcy protection, no statutes of limitations, no state usury laws or truth-in-lending laws there to protect private student loan borrowers.

Congress is taking some steps to restore some of those consumer rights to student lenders. At RIHEAA, we’re always telling students to max out on their federal loans before opting for private loans because the federal loans do have consumer protections—forgiveness and forbearance provisions, as well as flexible repayment terms. Students and families need to make realistic choices and be willing to make some tough decisions about the future value of the education they are going to receive and how much debt they are willing to take on for it.