Student Loan Debt Hits $1 Trillion, Deemed 'Too Big To Fail' By One Federal Agency

The student loan debt market is now "too big to fail", says Rohit Chopra, the student loan ombudsman for the newly created Consumer Finance Protection Bureau.

Speaking on Wednesday to a conference hosted by the Consumer Bankers Association in Austin, Texas, Chopra highlighted the sobering news that total student loan debt in the United States now exceeds an eye-popping $1 trillion, a record high. In prepared remarks published on the CFPB's blog, Chopra writes:

Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us.

If that wasn't disturbing enough, now comes news that the interest rate on new subsidized student loans from the federal government, called Stafford loans, are set to double to 6.8 percent on July 1 if Congress does not prevent the federal program keeping those interest rates low from expiring.

If interest rates on new subsidized student loans double, the average student loan borrower on the standard 10-year plan will need to pay $2,800 more over the life of the loan, according to the U.S. Public Interest Research Group, cited by Time. Students who borrow the maximum $23,000 will have to pay $5,000 more under the 10-year plan -- and $11,000 more under the 20-year plan.

More troubling, a new survey reveals that students are generally confused and ill-informed about the what the money they borrow will cost them in the long run.

Nearly two in three student loan borrowers were surprised by some of the terms of their student loans, according to a recent study by Young Invincibles. Oftentimes, students borrow money from multiple lenders.

"This fragmentation may make it more difficult for them to understand the implications of their student-loan decisions," wrote Healey Whitsett, author of the Young Invincibles study.

While there's a limit to how much college students can borrow in public loans, private loans have no ceiling. Public lenders are more forgiving than private lenders when it comes to financial relief, according to FinAid.org. Some borrowers are also misled by loans that come with variable interest rates, which mean the loan gets progressively more expensive to pay back.

The student debt crisis is causing some students to rise up in protest. More than 130,000 college students have written letters to Congress asking them to stop the interest rate on new Stafford loans from doubling.

In response to growing student loan debt, some colleges are offering three-year college degree programs, according to CNN Money.

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Comments

[angrypatriot22]

02:11 PM on 03/26/2012

If the student lending system is on a path to failure, we must let it fail. We cannot allow the elites of this nation pervert the "free market" by using our dollars to save their dying money making machines. There can't be exceptions to the rules. While they have been free to engage in dishonest practices, they too must be FREE to fail. Such a failure will only send shockwaves which will effect investments in which fragmented student loans have been so cleverly tied in, just as with mortgages. If there is going to be ANY bailout whatsoever, it must be for the people. I propose that the fed give us the same, next to zero percent interest loans to make repayment more manageable. What good are the lenders serving by throwing people into default or preventing a minimal standard of living? They are throwing a wrench in the gears that make this economy work. If our economy is driven by consumer spending (not spending on student loan bills), what can we expect to happen? The students, a huge chunk of the economy and massive consumers, will simply turn into a drag because they will cease to spend, even on the things they absolutely require. Bailing out student loan companies so that they can continue to operate and NOT spend on anything useful, will screw us all in the end.

[Old Poor RIchard]

11:24 PM on 03/26/2012

We haven't had a free market in the US in at least 100 years. Why would the powers that be suddenly discover capitalism on this one topic! Socialism for banksters is the American way, and the Tool-in-Chief Obama 'z gonna get their money.

[kamact]

11:51 AM on 03/25/2012

The government and banksters, who also have major equity positions in the for-profit educational firms, are again pumping and getting ready to get bailed out at the expense of taxpayers,....

[Well Armed Lamb]

08:36 AM on 03/25/2012

Aahh here we see the unintended consequences of govenrnment intervention to promote easier access to higher education. These institutions of higher learning have increased their tuition rates far in excess of cost increases. Where does all this money go? Does not go to the teachers. Does not go to real estate. Why is it that faculty heads can make 100's of thousands in compensation when they more or less run monopolies.

This should be the governments next make work project restore the free market to the education system by eliminating loan subsidies to students and restrict access to these institutions from foreign subsidized students

[afairview]

08:39 PM on 03/24/2012

It's amazing how inequality can destroy a country, people will keep on taking student loans so they don't fall into poverty. The wealth is so concentrated at the top that not even a bachelor's degree is enough to make a living. With CEO's making 300-400 times the average worker there isn't much left to be distributed to lower positions. Deregulation not only caused the financial crisis, it also brought feudalism back.

[edenooch]

08:39 PM on 03/24/2012

higher education is becoming a luxury. no one should be making a profit over kids going to school.....this is why more people from the ghetto cant goto college and the unemployed cant go back...

[Kiabell04]

01:04 AM on 03/26/2012

Yep, we are slowing regressing back into the robber baron era.....we need the progressive era to resurface. Reform is desperately needed.

[BrianPK80]

04:46 PM on 03/26/2012

Right on all counts except for the word "slowing." It's a fastlane highway to hell!

[Dave C]

07:25 PM on 03/24/2012

A blatant grammar mistake on the front page headline? get somebody with a little education "too" read these before you post it for the world "too" see

[knotsofast]

05:37 PM on 03/24/2012

The Pain Train is coming:
http://www.ocregister.com/opinion/budget-346003-debt-percent.html

[Americanwoman55]

10:56 AM on 03/24/2012

Well people are unemployed, upside down on their houses and their helth insurance is now costing them up tp 30% of their income!!!!!
So their is nothing left to payoff the student loans.

How are people suppose to get from under when they are forced under by government controlled issues created by the government!!!!!

[logansteele1]

09:58 AM on 03/24/2012

"If current trends continue, there will be consequences not just for young people, but for all of us."

This is a simple fix. Stop giving out the loans. If college kids can't or won't understand the fine print or can't or won't check an amortization chart then perhaps they shouldn't be taking out loans at all. Perhaps while a child is college age [or even up to age 26 as with Obamacare] they should be required to have mommy and daddy do the heavy lifting for them and take out the debt for the kids.

[tosc]

03:33 PM on 03/24/2012

don't forget about the tens of millions of us more mature students who returned to college to make a viable career change to a new profession, like education, only to have the unfortunate luck of graduating just as the massive education layoffs began and still continue. How am I, a 52 year old layed off school teacher, supposed to pay on my student loans when I am only being hired as a per diem sub? and only working7-12 days a month for $120 a day. Now don't forget I still have to cover my side of the rent, utilities, gasoline to get to these subbing sites as well as pay cash for my medical care, because I cannot afford the cobra plan offered to me.......How?

[logansteele1]

06:05 PM on 03/24/2012

Apparently you can't. But that doesn't change the fact that you entered into a contract saying you will. Falling on bad times, coming of age in bad times, or having a plan that backfires because of bad times does not change that.

If we change the rules about loans based on the economics of the times there will be no large principle long term loans given. It will simply not be worth the risk because too much about a ten or fifteen year time frame will be completely unknown.

[Nichole Victoria]

05:19 AM on 03/25/2012

How do you believe students are going to go to college?? Oh wait, I forgot, they can just go pick the money off their money trees in their backyard...silly me. Why don't you come back to reality and realize that students that don't qualify for any scholarships, grants, or federal aid have to get loans.

[logansteele1]

11:21 AM on 03/25/2012

If the kids have to get loans then they have to get loans, but they also have to pay them back. If loans or scholarships are not an option then they find another path to employment. If they want to learn for learning's sake they go online, to a library or audit a course.

Just because you want a college degree or want to attend a certain college or don't want to pay the price of admission does not mean it will happen. Best to learn that earlier than later. We don't always get what we want and even when we do it doesn't always turn out as we planned.

[jwalter]

09:55 AM on 03/24/2012

Nothing is too big to fail. The sooner we get the government out of the loan industry, the sooner suppliers will be forced to provide products consumers are willing and able to pay for without burying themselves in debt.

[Americanwoman55]

11:01 AM on 03/24/2012

We need to make college cheaper.

[diverjay]

11:14 AM on 03/24/2012

Here is a suggestion.
Armed services=pays up to $50,000 for college.
Peace Corps=pays 1/2 your college tuition.

[jwalter]

11:26 AM on 03/24/2012

Government price controls never work. The market does.

[jwalter]

09:51 AM on 03/24/2012

Remember the housing bubble caused by easy credit created by the government? What do you think federally guaranteed student loans do to the price of higher education?

[Dallas Dunlap]

09:03 AM on 03/24/2012

First - "Too big to fail" is a ridiculous statement. The Federal Reserve lent banks, including foreign banks, $16 trillion under their emergency program to deal with the financial crisis. There were several individual banks that got more than $800 billion each. The Fed could refinance every student loan in the country at 0% interest if they wanted to.
Next are the complaints about "unnecessary courses." Apparently, we need to decide whether college is designed to produce a well rounded, educated, individual or whether college is vocational training. Perhaps colleges could offer shorter vo-tech degrees to train people in specific fields and conventional four year degrees for those who want traditional education.
As to the value of education: The unemployment rate for persons with bachelor degrees or higher has been less than 4.5% throughout this recession.

[AIlegroTroppo]

09:33 AM on 03/24/2012

"There were several individual banks that got more than $800 billion each"

Um, but those banks repaid their loans. And with interest.

The defaulted student loans-- not so much.

[Dallas Dunlap]

09:59 AM on 03/24/2012

AllegroTroppo - Well, some of the banks repaid their loans after selling some of their risky portfolios to the Fed. And it's true that they repaid with interest, but the interest was in the 1/10 of a percent range. The student loan debt is not a national emergency. Change the law so that people can discharge the debt in bankruptcy proceedings and the problem would largely go away.

[moevaughn]

09:41 AM on 03/24/2012

Yes. And the 0% rate should be available to everyone paying off student loans. It's set up now so that if you have consolidated, you are locked in and can never go to the lower rates when they become available. Also, the unemployment rate may seem low for those with degrees, but it may be because a lot of us are having to resort to substitute teaching while looking for full employment. I wonder what the underemployment rate is for college grads.

[logansteele1]

10:01 AM on 03/24/2012

The employment rate really isn't the issue. It' the ability or desire to understand a legal contract before signing. If all the loans go to a 0% interest rate and special considerations are to be made about paying back even that, then let's rename these loans to welfare grants because that is what they will become.

Business is not charity. When you sign a loan document you need to pay back within the terms of the loan. You can't tell me these kids didn't realize that because if they didn't, perhaps they weren't really college material after all.

[Dallas Dunlap]

10:02 AM on 03/24/2012

moevaughn - In February the unemployment rate for college graduates was 4.2%, about where it has been since the recession started.
College grads may not be finding the jobs they want, but they're working.

[greyhound2]

07:41 AM on 03/24/2012

One report estimated that a third of tuition costs go to the athletic department. Everybody in the sports department is making tons of money except the players on the field, who are classified as amateur. If colleges and universities dumped their football teams, students would save a ton of money and maybe even get a good education.

[logansteele1]

10:03 AM on 03/24/2012

Nothing is stopping kids from choosing a school with a small sports department. They don't have to subsidize a sports program if they don't want to. Know one is arm wrestling them into it.

[antiquepicker62]

03:19 PM on 03/24/2012

College football at least Div one makes $$$. As does big time college basketball. But the universities are just as greedy as the banks.............

[antiquepicker62]

07:08 AM on 03/24/2012

Look at the big picture. Is tuition going down or at least flat in this economy? No. College costs are rising like medical care yet no one beefs? All in the name of education. So become a plumber at least you'll have a steady job.

[logansteele1]

10:04 AM on 03/24/2012

And perhaps even a more fulfilling one at that. You could become your own boss, interact with many interesting and different people and even stop at the bank to cash that payment check between jobs!

[doc4fitness]

05:46 AM on 03/24/2012

Part of the problem is that people are majoring in subjects with no practical use. Then demanding that someone pay back their loans.

[antiquepicker62]

07:09 AM on 03/24/2012

Right on doc!