Americans Slash Credit Card Debt but Rack up Student Loan Debts

By Eva Hilton

According to the Federal Reserve Bank of New York, the levels of credit card debt in the US have been steadily falling. In August 2012, they were observed to be at a level unseen for ten years, as was the rate of credit card delinquency. However student debt continued its upward trend along with the delinquency rate. Since household debt peaked in the third quarter of 2008, the level of student debt has risen by fifty percent. The change in the levels of credit card debt and student debt when compared to one another have been dramatic, as just over four years ago, the credit card debt total was greater than the student loan debt total by a quarter. By the second quarter of 2012, the student loan debt total was greater than the credit card debt total by a quarter, meaning that the roles had completely reserved. This means that we should perhaps be worrying more about student debts and less about credit card debts.

The Dangers of Student Loans

An article published in Forbes magazine examining the main sources of debt problems claims that one of the reasons that student debts have overtaken credit card debts is that all student loans are issued directly by the government, which asks very little about borrowers’ ability to repay the amount that is loaned or the type of education they are intending on pursuing. Obtaining credit using credit cards is less risky in a way because student loan debt is very difficult to discharge in bankruptcy. Many students are issued loans that they are never actually going be able to pay off. Critics have stated that this means that student loan debts can become a form of servitude that is impossible to break free from. There are calls for bankruptcy law reforms to address this issue along with a crackdown on exploitative for-profit colleges. Critics claim that the present expansion of debt stemming from student loans is not sustainable.

The Response

In an effort to reduce defaults on student loans, the U.S. Department of Education has tightened standards on loans issued to parents and grad students and allowed the postponement of payments during periods of hardship. The Department has also prohibited federal lending to universities if over a certain percentage of their graduates default over several years. The opinion has been expressed that this form of debt has been allowed to mount up partly due to the fact that debt prevention organisations have focused their attention elsewhere. Student loans are not seen in the same light as credit card debts. There is a stigma attached to wracking up large amounts of money on credit cards, whereas obtaining a student loan is seen as a necessary step to advance a person’s education.

Step in the Right Direction for Credit Card Debt

Bankruptcy and creditors’ rights experts Barry Chatz and Kevin Morse put the drop in credit card debt down to Americans becoming more frugal and warier about living on credit. This means that a step in the right direction has been made with regards to credit card debts. Morse and Chatz have stated that the decline shows a reasonable reaction to the current economic situation. However many are still unaware of the risks involved in obtaining student loans. Morse and Chatz claim that students should be more responsible for their decisions. At the end of the day, a student loan is a loan like any other and should not be taken out by anybody who feels that he or she is going to be unlikely to be able to pay it off.

A Loan by any Other Name is Still a Loan

Although student loans have now surpassed credit cards as a source of debt, it is still important to remain vigilant with regards to credit card use. Credit card users have made tremendous progress with regards to cutting their debts but there is a long way to go and credit card debts are still a burden upon many people’s wallets. Student loans might be viewed as necessary but they can be just as detrimental and should be treated with as much respect as credit cards. It is important to remember that a loan is a loan regardless of whether it is being used to further a person’s education or purchase material goods.