Sunday, August 21, 2011

Banks Add Fixed-Rate Loans for Students - Student Loan Debt Bubble?

Student Loan Debt Bubble?

Banks Add Fixed-Rate Loans for Students -

Most private student loans have carried variable rates, where the interest rate can adjust up or down each month. But now, for borrowers nervous about rising rates, lenders are advertising loans with interest rates that remain fixed for the term of the loan, typically 10 to 15 years. At least 12 lenders now offer fixed-rate loans, nearly double the number from a year ago, according to"

Gannet's Democrat and Chronicle report that Student Loans now Outpace Credit Card Obligations.  "Nationwide, student borrowing is estimated to have mushroomed to $931 billion — for the first time eclipsing the estimated $798 billion in credit card debt.

"We are going to hit the $1 trillion mark this year," said Mark Kantrowitz, publisher of the FinAid and Fastweb web sites owned by Monster Worldwide. FinAid also publishes scholarship information.

James Rosen of Fox News asks if "STUDENT DEBT: America's Next Bubble?". Rising by $100 billion a year, outstanding student loan debt now stands at about $930 billion, and is expected to reach $1 trillion by year’s end."

"Beyond dispute is the value of a higher education diploma, notwithstanding the risks associated with borrowing heavily to obtain it. Federal data last month showed an unemployment rate of under 5 percent for those with at least a college degree, compared with a rate of over 9 percent for those who only have a high school education.

Some are starting to "dispute" the value.

Justin Lahart of the Wall Street Jopurnal writes: Student Loan Debt Climbs - Real Time Economics

"Americans have cut back on credit of all kinds, with one notable exception. According to the Federal Reserve Bank of New York’s quarterly report on debt and credit, U.S. households had $11.42 trillion in debt outstanding in the second quarter. That was down from a peak of $12.5 trillion in the third quarter of 2008, when the financial crisis took hold, and the lowest since the first quarter of 2007. Mortgage debt, home equity loans, credit card debt and auto loans are all down sharply — partly because people are being more careful, but also because many have defaulted. But student loans are up sharply. There was $550 billion in student debt outstanding in the second quarter, up 25% from $440 billion in the third quarter of 2008."

Bottom Line: 

College is expensive. A degree can get you a high-paying job, but debt can really be a task master. 


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