According to a Federal Reserve report, average Americans owe more on student loans than credit cards in 2010. It is reported that consumers owed around $829.8 billion on private and government student loans in the second quarter of 2010. However, the total amount of credit card debt was around $826.5 billion during the same period.
Student loans exceed credit card debt
The fact that student loans have exceeded credit card debt is not surprising. Education has indeed become very costly. The parents are being compelled to take out multiple student loans to pay for the college education. It is said they owe around $600 billion on the Federal student loans in 2010. Out of this amount, approximately $300 billion has been taken out in the last 4 years.
Financial experts are of the opinion that the sharp rise in national student debt is likely to make the students think twice before they choose a college. This is because his educational expenses would certainly depend upon the college he chooses. The US job market has not fully recovered from the after-effects of recession. An increasing number of unemployed people are still finding it difficult to find work. Rather than doing nothing, students prefer to complete higher education for increasing their job marketability. So, when jobs are available, they have a better chance to get employment.
However, the economists are predicting that the job market is not likely to recover in the near future. Now if the undergraduates are unable to find jobs, then it will be very difficult for them to pay back the student loans. This means that national student loan debt is likely to increase in the future.
Few factors have led to the increase in national student loan debt. The Federal bankruptcy law has made it quite difficult to pay off student loans through bankruptcy. Under the law, consumers can discharge credit cards but not student loans through bankruptcy.
Tuition fees of both the private and government colleges have increased. But the size of the Federal loans has not increased in comparison to the increasing cost of the education, thus compelling students to go for private loans. It is also true that most students of the present generation are accustomed to higher standard of living. They want good colleges, superb hostels, etc. The fees of the good colleges are higher than that of the community colleges. But most of them don't have any inclination to study in the government sponsored colleges. These factors coupled with the poor economy have made it quite hard for the students without any job to pay off their debts.
One of the reasons why credit card debt has reduced is that an increasing number of consumers are making credit card bill payments on time. Another reason is that consumers are taking less number of plastic cards in 2010 after the Credit Card Reform Act. Moreover, some of the provisions of the Act have made it easier for consumers to avoid some major credit card mistakes which can otherwise get them into debt problems.
Finally, whether or not it is a student loan or credit card debt, consumers need to pay them off and achieve financial freedom. They ought to remember that even student loans (considered as good debt) must be repaid to lead a stress-free life.