New York Fed: Student loan debt now over $1 trillion

By Stephen C. Webster
Wednesday, October 19, 2011 15:22 EDT
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College graduates in Shanghai celebrate on June 8, 2011
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The Federal Reserve Bank of New York claimed in a published report Wednesday that student loan debt in the U.S. has now surpassed $1 trillion, for the first time ever exceeding the total amount of credit card debt held by Americans.

Due to the rising cost of education across the board, students are being forced to borrow almost twice as much as they were just 10 years ago, the College Board told USA Today.

That’s what led to a spike in student loan amounts and drove 2010′s total loans to more than $100 billion, another new record, accounting for roughly $4,963 for every full time undergrad student.

What’s worse, Americans are increasingly defaulting on their student loans, with failures to pay going from 6.7 percent in 2007 to 8.8 percent in 2009. An added bonus: most defaults came from students at private, for-profit schools, which have grown by more than one-third over the last 10 years.

The growth in student lending may be the next major market bubble to burst, according to a recent report by Moody’s Analytics (PDF).

If that happens, it could cause even greater instability in the markets, as many of the major players propped up by the taxpayers after the crash of 2008 have traded in derivative schemes backed by student loan debt — all of which could become toxic assets if the default rate increases too rapidly.

Photo: Flickr user Carnoodles.

Stephen C. Webster
Stephen C. Webster
Stephen C. Webster is the senior editor of Raw Story, and is based out of Austin, Texas. He previously worked as the associate editor of The Lone Star Iconoclast in Crawford, Texas, where he covered state politics and the peace movement’s resurgence at the start of the Iraq war. Webster has also contributed to publications such as True/Slant, Austin Monthly, The Dallas Business Journal, The Dallas Morning News, Fort Worth Weekly, The News Connection and others. Follow him on Twitter at @StephenCWebster.
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