I suppose a more positive way to spin this would be, “Credit Card Debt No Longer Our #1 Financial Concern!”
Yes, you read that headline right – our student loans have finally managed to surpass our credit card bills in outstanding debt. According to figures from the Federal Reserve in June of 2010, consumers collectively owe $826 billion in revolving credit. That’s billion, with a B. If that doesn’t prove Americans are in desperate need of debt relief, I don’t know what will.
Not to be outdone, outstanding student loans both federally and privately funded now ring up to a total of $829 billion, according to FastWeb.com. And I thought I was overcharged for textbooks when I was in college.
Textbooks vs. checkbooks
So how did student loans manage to surpass credit cards as Americans’ biggest running tab? You might blame the fact that unlike credit cards – where what you see on your statement is what you get, and too many bad decisions can leave you scrambling to fix bad credit – student loans are slow to burn, accruing over many semesters and trips to the bookstore and financial aid building, until you finally are ready to graduate and you’re left with a gigantic bill to go with that sheepskin.
It could also mean a shift in priorities for many students trying debt management by concentrating on paying off their credit cards first as a means of getting out of debt quicker. Because most credit card companies continue raising their minimum monthly payments, and credit cards tend to carry higher interest rates than student loans, many consumers who are stuck with both bills are choosing to focus more on their credit card bills, lest their scores fall lower than their grades and they wind up in need of credit repair services.
Paying with more than just your lunch money
People are also more willing to borrow money for their education than they are to spend on their credit card. With tuition at both private and public 4-year universities going as high as $26,000 as of last year, many students and parents are taking out loans in droves.
Student loans are also very difficult to include in a bankruptcy; they typically can’t be discharged because of the wealth (no pun intended) of repayment options. According to FastWeb.com, only 29 out of 2,880 borrowers who tried to discharge their loans through bankruptcy were successful, and of those many only had a part of the loan discharged, not the whole bill.
So whether you’re about to send your kid off to college or you’re thinking about taking some classes again yourself, be careful how much you’re willing to borrow. It may be a slow burn when compared to the sting of your credit card bill, but it’s a burn nonetheless.
