Americans Now Owe More on Student Loans than Credit Cards

Student loans now comprise a bigger chunk of American consumer debt than do credit card charges, according to recent data from Mark Kantrowitz, of FinAid.org and FastWeb.org, a somewhat unexpected finding considering the rough state of the economy.

Kantrowitz asserts that as of June, Americans owe about $826.5 billion in revolving credit (most of which is credit card debt), while student loans, both federal and private, all together have now grown to $829.8 billion.

This economic twist has apparently caught many by surprise.

“The growth in education debt outstanding is like cooking a lobster,” Mr. Kantrowitz said as quoted on the Wall Street Journal blog. “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”

The numbers are not so shocking after examining the details. Yes, it is a poor economy and plenty of people are unemployed, but those who can are paying down their credit card balances, fearful of running up high tabs in an unstable employment environment. Add to that a banking culture which has dramatically tightened its lending requirements and it’s easier to see what’s going on. Revolving credit actually hit a high of $975.7 billion in September 2008 and has been steadily moving downward since then.

And notwithstanding the rough economic times, education goes on, and the price tag for career training keeps moving up. The average tuition at public and private four-year schools in 2009 was about $26,000, and that doesn’t even take into account books and living expenses. So students are on average taking out a much larger sum in financial aid loans than most consumers put on their credit cards for other needs.

It is also important to note that when consumers have both credit card debt and student loans to pay off, the credit card bills will typically get paid faster because they carry much higher interest rates. Student loans are often much more forgiving and can sometimes even be deferred in some cases.

Still some people are concerned that the ills of the student loan business are not getting enough national attention. According to a news release this week, the Washington state-based advocacy group Student Loan Justice claims,

“While these two types of debt weigh roughly equally upon the citizenry, media coverage of credit cards exceeds coverage of student loans by a factor of approximately 15-to-1 based on unscientific news surveys conducted since 2007.”

And

“while credit card borrowers enjoy the fundamental consumer protections afforded all other borrowers with all other types of debt, federal student loan borrowers enjoy almost none of these protections. Not bankruptcy protections, not statutes of limitations, not truth in lending laws, not state usury laws…non-profit guarantors are even exempt from fair debt collection statutes.”

The newest set of financial laws passed by Congress may address some of these issues, though, as they have placed all private student loans under federal regulation.

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