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Student Loans Spike to Top $1 Trillion

The sharp rise in the nation’s student loan debt, now upwards of $1 trillion, is most concentrated among Americans with poor credit, according to a report released by the Federal Reserve Bank of...
Student Loans Spike to Top $1 Trillion
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  • The sharp rise in the nation’s student loan debt, now upwards of $1 trillion, is most concentrated among Americans with poor credit, according to a report released by the Federal Reserve Bank of New York on Tuesday.

    According to the report, student rose debt rose 12 percent in 2013 to reach $1.08 trillion. Student debt remains the second largest source of household debt behind mortgages.

    The report shows that the rise in student debt has not been universal among groups with different credit profiles, according to the Wall Street Journal.  A third, or four percent, of the 12 percent overall rise in student debt came from borrowers with the worst credit history, with credit scores of 620 or below. About five percent of borrowers were from the 621 to 680 credit score range, and two percent from the mid-range of 681 t0 720. The data showed that there were no new borrowers with credit scores at or above 780.

    The data suggests that with the onset of the recession, more Americans are enrolled in school in an effort to gain new skills and hopefully secure higher paying employment after graduation.

    Data released by the U.S. Census Bureau in September 2013 showed that the majority – at nearly 50 percent – of overall income goes to households headed by a member holding at least a bachelor’s degree.  Twenty percent goes to high school graduates, and five percent to those without a high school diploma.

    With student loan repayment delinquencies by borrowers on the rise, there is growing concern among economists on the effects of student loan debt on the recovery of the housing market and the consumer market in general. Missed loan payments may affect borrowers’ credit and affect one’s ability to obtain credit for loans to purchase cars and homes. A senior official at the Consumer Financial Protection Bureau recently warned that the rising student loan debt “may prove to be one of the more painful aftershocks of the Great Recession, reported the Washington Post.

    According to the data, approximately 11.5 percent of student loan balances were in default in the fourth quarter of 2013, up from 8.5 percent in 2011. A default in payment means no payment had been made in at least 90 days. However, the data did not differentiate on the delinquency rate among borrowers with different credit scores.

    Image via Wikimedia Commons

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