Student Loan Debt Steadily Rising

The recent recession has forced many individuals, especially students, to turn to credit cards to pay for every day necessities. This has led to an increase in both credit card debt and student loan debt.

According to the Federal Reserve, in September, consumer borrowing rose to $11.4 billion, and total consumer debt rose to $2.74 trillion, which is the highest level on record. This figure excludes mortgages and other housing-related borrowing, but includes other types of consumer debts like car loans, student loans and credit cards. Student and car loans increased $14.3 billion, while credit card debt fell $2.9 billion.

Experts say, credit card debt is high, but dropping, because of high interest rates. With unemployment still high and the economy still weak, many consumers will take out more in low-interest student loans and use that money to cover expenses instead of using high-interest credit cards because of the lower interest rates. This trend likely explains why credit card debt has fallen 17.1 percent, but student loan debt has risen to 21.2 percent since the beginning of the economic crisis in 2008. In addition, many of the loans are due to the fact that many Americans facing unemployment have gone back to school.

One option for individuals facing rising levels of debt is bankruptcy. Under Chapter 7 bankruptcy, much of the debt held by the individual can be discharged. Under Chapter 13 bankruptcy, the individual comes up with a reorganization plan for his or her debt.

The two most common types of debt that can be discharged include credit card debt and medical bills. However, debts that generally cannot be discharged include student loan debt. Individuals may therefore want to think carefully about the consequences before taking on such debt.

Source: The Sacramento Bee, “More student loans boost consumer credit $11.4B,” Christopher S. Rugaber, Nov. 7, 2012