Student debt

Date posted: July 26, 2012

The one type of debt that has continued to rise during the recession is debt from student loans. N.C. State University economist Mike Walden discusses the trend.

“Well …, the debt is way up. In fact, in the last decade student debt has gone up five-fold to now almost $1 trillion as a percent of household debt. It’s gone from 3 percent to 10 percent. Delinquency rates have also trended upward.

“Now, of course, this is being driven by several factors. There are more individuals going to college. College costs have been going up. Some states have been reducing college aid. And then, of course, we’ve had the recession.

“This is going to have several implications down the road. It’s going to mean that graduates of colleges are going to have to work longer to pay off that debt. It means that they’ll probably delay establishing their own household. Maybe delay purchasing a home.

“Now some worry that there may be a financial collapse prompted by this debt, especially if there are large defaults. Some sort of compare it to what happened in the housing market. That’s probably overdrawn at this point. Student debt, for example, right now is less than 10 percent of mortgage debt. A lot of it is held by the government. So if there’s a problem, the government would absorb that rather than the private sector. So I think it’s probably over-playing it to say this could be setting us up for a financial fall.

“But nevertheless, it’s a very, very important issue, particularly for those college students.”

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