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Student Loan Debt Surpasses Credit Card Debt

This article was written by in Debt Reduction. 13 comments.


According to the latest statistics from the Federal Reserve and the publisher of FinAid.org, the total amount of money Americans have borrowed on government and private student loans at $830 billion has surpassed the total American consumer balance on credit cards, only $827 billion.

As the Wall Street Journal mentions when sharing this information, this is partly due to a decrease in credit card debt in addition to an increase in student loans.

I recently read a preview of Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents. The author, Zac Bissonnette, is a student at the University of Massachusetts and an entrepreneur, and his book takes a look at a number of common assumptions about college education, and the financing thereof, and explains how student loans are unnecessary in almost all cases.

Zac will be a guest on an upcoming episode of the Consumerism Commentary Podcast, and we’ll discuss how to graduate college without debt and how to choose a college.

Student loan debt is usually considered “good debt.” Since you are borrowing to pay for a college education and degree that will increase your earning potential over the course of your life by much more than the cost of that degree, it’s often considered a good investment. A small tax benefit helps to make student loans more attractive.

When there are opportunities to save money on an education by attending a state school rather than a private school, or even attend community college for two years before completing a degree somewhere else, and when the name of the school on the degree is not important (which may or may not be the case), a student loan looks like less of a deal.

In addition, student loans will stick with you even after declaring bankruptcy. The government can garnish social security payments and tax refunds if you default on student loan payments.

Are student loans “good debt?”

Updated May 5, 2014 and originally published August 11, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar Investor Junkie

No, student debt is from a lender’s standpoint is (was) traditionally very risky debt. Up there with small business loans, yet government intervention pushed them much lower than the rate they should be at.

From the debtor, it really depends upon the ROI. Spending 100k on English Lit, not so much.

Student debt is the debt that keeps on giving.

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avatar Leigh

It’s no longer possible to characterize all student loans as good debt. I’ve seen too many students take on six figure debt for degrees that will not ensure a salary that offsets the cost of those loans.

I encourage reading the following recent article at CNN: http://money.cnn.com/2010/07/22/pf/college/highest_paying_college_majors/index.htm

Disclosure: I happen to work for one of the schools listed in this article.

In short, unless you intend to earn a degree that will command a significant salary from the day after graduation, I recommend doing everything possible to avoid student loans. That may include taking time off to work and save, joining a branch of the military for the GI Bill, taking community college classes, attending a public school in your state, applying for every grant and scholarship you can find, or being a part-time student.

The majority of degrees are not worth the full price ticket let alone paying interest on those loans for 20 or 30 years in the future.

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avatar Jeff @ Sustainable life blog

I dont know for sure if student loan debt is “good” debt, but I can tell you one thing: Student loan debt is taken out far too much, probably because it’s viewed as “good” debt.

If people had depression-era views of debt and were much more hesitant to get into debt than they are now, people would still find a way to get some form of higher education without taking on debt loads that would choke an elephant.

While some may have an acceptable ROI and CAN be a good idea (engineering/accounting) this is not the case for the majority of majors, and students need to realize that. I wish I had.

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avatar PedroNY

The default rates on debt for people who attend for-profit colleges (i.e. U of Pheonix, Devry, Kaplan, etc.) is extremely high. Many of these people do not finish the school, do not acquire all that many additional skills and are in debt $1,000s each. Their default on the debt that is guaranteed by the U.S. government (Stafford, Perkings loans) so the tax payer eventually pays it.

You can form our own opinion if this should be subsidized by U.S. govt, and the benefit of these colleges (economic growth in U.S.) outweights the costs to the U.S. Federal governement. I am not sure if this would be considered “good debt”.

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avatar Not Employed

Taxpayers ultimately pay only for student loans which are never repaid. Since student loans (except in rare cases) can no longer be discharged in bankruptcy, and the government has ways of collecting not available to private lenders – they can take your tax refunds, stimulus payments (remember those?), and even monthly Social Security benefits above $750 – even defaulted student loans ultimately are mostly repaid. And they’re probably even making money in the collection process, as Treasury gets a nifty $17 every time they “offset” a tax refund, stimulus payment, or Social Security benefit. So if you’re getting say $850 per month in Social Security, $100 is offset (leaving you with $750 to live on $17 goes to line the Treasury coffers, and only $83 actually goes to your defaulted student loan. Which is fine with the government because they collect more in the long run. Unless you die before your loan is fully paid.

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avatar ctreit

Looks like these student loans may be another trap in which many people will find themselves. It must be very hard to start your adult life with a load of debt. Is a high debt load the new American “dream”?

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avatar Not Employed

Actually we’re in a downward spiral. In response to the recession, the existing perceived premium on college education is growing – in times of economic contraction, degrees are being seen as even MORE necessary than they were before – college enrollment is soaring, and so is student loan debt. Which means down the road, there will be even more people weighed down with unmanageable student loan debt.

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avatar Yana

No, I don’t call any debt good, but student loan debt can be the worst debt ever – and it is, when large sums of money are borrowed and then used as an excuse later to charge consumers inflated rates – this is what professionals do. Because THEY have bills to pay, and the consumer’s own standard of living is irrelevant. It is irresponsible to take on huge debt in the name of a fantasy that one will be able to pay, and equally irresponsible to overpay for an education with a lottery-like dream in mind.

On a personal level, we don’t take on debt at all, but this was not always the case. I’ve had both credit card debt and student loan debt, and I regret taking out the student loan, even though the debt was smaller than the credit card debt. At the time I was forced to pay the student loan, I had papers served on me at my door by the government, and I could not afford to pay the debt. By this I mean that I had no income whatsoever at that time. The only thing I could think to do was to borrow money from credit cards to pay off the government. That’s what I did.

Credit card debt and collection agencies are disgusting, but student loan debt and terrorist tactics used to collect are worse by far. They effectively scared me into paying, and did such a good job of it that I am still thankful that I had good credit and credit cards to use to save me.

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avatar Doug Warshauer

It might be “good debt” in the sense that it can be a good decision to take it on, but once you have made taken it on and completed your education, you still want to pay it off as soon as possible. If it lingers, it’s not “good debt” anymore, because it is destroying your wealth.

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avatar Cass ♦0 (Newbie)

I have taken advantage of ECS (Early College Start – free if you leave within the district) available through community colleges and I am able to gain college credits while in high school. I have some scholarship monies and grants. If I run out of money then I will just work and take classes as I can afford them. You can pursue higher education, graduate, and not have a six figure debt to show for it.

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avatar tigernicole86 ♦55 (Newbie)

This isn’t a surprise to me. It is difficult in a lot of areas of the country to get a job if you don’t have a bachelor’s degree even for just being a receptionist. And for one of the jobs as soon as I got of college that interviewed for was a fast food manager position and they said my education made me overqualified. So, I do see where it’s difficult especially if you just happened to not pick the right job for the right area of the country how hard it can be to find a job.

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avatar faithfueledbennetts ♦264 (Nickel)

I think student loans have to be looked at very carefully. My husband & I just went through this. He wanted to return to school & get a BS degree, so we had to look at the potential pay & growth in the field he is studying in comparison to the loan amount. We felt that his field of study will pay enough to make the investment of the education worthwhile without taking our family under. Knowledge really is power. The more you know about the risks and payoffs the better off you will be.

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avatar wylerassociate ♦162 (Cent)

unfortunately in this economy with wages decreasing and the job market, college graduates aren’t making enough money to pay off student loan debt as quickly as possible.

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