Direct government student loans exceed half a trillion; higher education costs out of control

The report on consumer credit from the Fed today showed another sharp increase in government financed student loans. The balance now exceeds half a trillion dollars, which is in addition to the student loans guaranteed (but not funded) by the federal government. Consumer credit is once again driven by this sector, as credit card balances actually declined.

Econoday: - Another big increase in student loans drove consumer credit higher, up $11.4 billion vs August's very large revised gain of $18.4 billion. The non-revolving component, home to the student loan category, rose $14.3 billion in the month on top of August's $14.1 billion gain. Revolving credit, where credit card debt is tracked, actually fell, down $2.9 billion for the third decrease in four months. 

In an attempt to address the problem of rapidly rising student indebtedness, the U.S. Department of Education made it easier to repay student loans taken out from now on.

WSJ: - The U.S. Department of Education last week issued the final regulations for the new, more-generous student-loan repayment program announced by the president last October. The plan, known as “Pay as You Earn,” will allow some graduates to peg their federal loan payments to 10% of their discretionary income and then have any remaining balance forgiven after 20 years.

This effectively makes the taxpayer responsible for funding a larger portion of higher education costs. Clearly it is a worthy cause, except that most funds available to universities from external sources (with no strings attached) will be drawn and spent, often irrespective of the need. In fact most colleges will always have some financial needs, no matter how expensive the tuition is. Obviously a portion of the tuition increases are used to help students from low income households, but middle class families are forced to pay more as a result. And the only way many middle class families can make these tuition payments is by tapping student loans in ever-larger amounts.

Read more: http://soberlook.com/2012/11/direct-government-student-loans-exceed.html