Thursday, September 27, 2012

Student Loans are a Widespread Problem

Outstanding debt on student loans totals more than one trillion dollars, an amount greater than total  credit card debt.

But now comes even more surprising news, at least to me, as described in One in Five Households Owe Student Debt. Here's the story:

"It’s no secret that student debt has risen rapidly in recent years. But a new report by the Pew Research Center has some eye-opening numbers:

Nearly one in five households, or 19%, owed student debt as of 2010, Pew found. That’s up from 15% in 2007. Among households headed by someone younger than 35 years old, 40% owed student debt in 2010.

–Between 2007 and 2010, the average balance of student debt rose 14% to $26,682, after adjusting for inflation.

Since 2007, student debt has risen the most among the poorest and wealthiest households, as opposed to those in the middle, while the share held by those in the middle three-fifths of earners declined, according to the analysis, conducted by Pew senior economist Richard Fry using Federal Reserve data.

The last point is particularly interesting, because Pew found that while student debt has risen for both poor and wealthy, it’s a much bigger burden for the poor when taking into account their incomes and other debts owed. Among all households in the bottom fifth of earners—including those with student debt and those without—the student-loan balance was, on average, equivalent to 24% of annual income, up from 15% in 2007. Across all households in all income brackets, the student-debt-to-income ratio was 6% in 2010."

Summing Up

The problem is even bigger than I realized. Much bigger.

How it will ever be brought under control is the question for which nobody as yet has proposed a plausible solution.

It's not the low interest rate on the loan that matters most.

Instead it's the alarming burden of student loan debt and its disproportionate impact on the poor that is most concerning. 

That plus the continuing absence of enough available good jobs for our heavily indebted and financially troubled graduates in the ongoing lackluster U.S. economy.

Thanks. Bob.

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