Spreading FINANCIAL INTELLIGENCE

Student-Loan Debt Surpasses Credit Cards

Consumers now owe more on their student loans than their credit cards.

Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today — both federal and private — total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

“The growth in education debt outstanding is like cooking a lobster,” Mr. Kantrowitz says. “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.”

By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.

Partially, this is a story about Americans paying down credit card debt. Some are seeking a new frugality, but many credit card companies are raising minimum monthly payments or cutting off new and existing lines that consumers in the past may have turned to during tough times. Revolving credit, the majority of which is credit card debt, reached a high in September 2008 of $975.7 billion, according to Fed data. A consumer who juggles both credit-card and student-loan debt is likely to pay of the credit-card first, as that debt tends to carry a higher interest rate.

In terms of volume, a person is likely to borrow more money to go to school today than, say, spend on necessities using a credit card during a patch of unemployment. Tuition at public and private four-year universities last year went as high as $26,000, with additional fees for housing and books not showing any signs of letting up either. It’s no surprise that many parents, reeling from the downturn, would turn to borrowing to make up the difference. With the cost of education increasing rapidly and the duration of unemployment increasing, perhaps the surprise is that this turning point didn’t hit earlier.

Student Loan Justice, a Washington State-based student loan advocacy group issued a statement on the student-loan eclipse, estimating that 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.”

But student loan debt, in many ways, is different than credit-card debt. These loans typically can’t be discharged in bankruptcy. They have different repayment terms, some of which can catch some have heavy consequences for borrowers who miss payments and borrowers’ families.

WSJ Blogs Real Time Economics

By Mark Whitehouse

122%: U.S. household debt as a share of annual disposable income

U.S. consumers are paring down their debts faster than many economists had expected. To understand what that means, though, it helps to know how they’re doing it.

As of the end of March, the average U.S. household’s total mortgage, credit-card and other debt stood at 122% of annual disposable income, meaning it would take a bit more than 14 months to pay it all off if everyone stopped spending money on anything else. That sounds like a lot, but it’s better than it was before: At its peak in the first quarter of 2008, the debt-to-income ratio stood at 131%. Economists tend to see 100% as a reasonable level, so we’re almost a third of the way there.

The falling debt burden conjures up images of a nation seeking to repent after a decade of profligacy, conscientiously paying down mortgages and credit-card balances. That may be true in some cases, but it’s not the norm. In fact, people are making much more progress in shedding their debts by defaulting on mortgages and reneging on credit cards.

Since household debt hit its peak in early 2008, banks have charged off a total of about $210 billion in mortgage and consumer loans, including credit cards. If one assumes that investors suffered at least that much in losses on similar loans that banks packaged and sold as securities (a very conservative assumption), then the total — that is, the amount of debt consumers shed through defaults — comes to much more than $400 billion.

Problem is, that’s more than the concurrent decrease in household debts, which amounts to only $372 billion, according to the Federal Reserve. That means consumers, on average, aren’t paying down their debts at all. Rather, the defaulters account for the whole decline, while the rest have actually been building up more debt straight through the worst financial crisis and recession in decades. …

Read the whole article here .