A Look at the Growing Student Loan Market

 

By Bondsquawk

July 12,2012

According to Barclays Economic Research by Cooper Howes, student loans that has surpassed $1trn mark, is driven by the increase in the number of loan seeking individuals.


“This rise has been driven mostly by an increase in the number of borrowers as opposed to per capita debt; between 2002 and 2010 in real terms, average debt per borrower increased by only 13% while the level of federal student loans outstanding rose by 174%.”

The actual concern, however, is the trend of increasing dropout rates which leads to students not being able to find jobs to repay these existing loans.

“The unemployment rate for those who complete only some college, while still lower than for those with only a high school education, remains significantly above that of college graduates.”

Another interesting fact is that a high percentage of student loan debt are held by individuals who are on the verge of retiring and have retired which says that it is becoming increasingly difficult for borrowers to repay the money even after the course of their lifetime.

“Almost 17% of the outstanding past-due balance of student loans is held by those over 50, and almost 5% by those over 60. Median education debt held by retired households rose by 62% between 2007 and 2009 alone.”

With increasing tendency of defaults, pressure on the already surging “fiscal cliff” will increase as the Government amounts to as much 90% of the student loans.
The income-based repayment plan (IBR) program for Government loans should help borrowers in the repayment of these loans, however the Government is underestimating the costs that this program will have on their fiscal situation.

“We think that the costs to the government of federal student loan programs are being underestimated by $225bn between now and 2020.”

Here is an in-depth analysis of a possible Emerging Bubble in the Student Loan Market.

Disclaimer
The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.

 
 
 

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