According to the Federal Reserve Bank of New York, there has been an increase in the percentage of student loans taken as well as the number of borrowers who are late on their payments.
Based on the quarterly report submitted by the Federal Reserve Bank of New York, education debt went up to approximately $914 billion in June 30 compared to the $10 billion in March. The almost 10 times increase happened in just about three months. However, this is not yet a total approximation because it does not cover the loans approved by nontraditional lenders.
But unlike student loan debts, some other forms of debt have reportedly gone down. Example of these would be personal loans, mortgages and home equity.
What Causes Student Loan Increase?
Based on the analysis of the Federal Bank, student loan increased when household debt peaked in the third quarter of 2008. This is because the family’s income would be spent more on the daily living expenses that tuition fees fall to the near-bottom of the monthly expenses. So in order to continue their education, students and/or their parents would be forced to take bad credit loans.
In another report, the number of student loan borrowers who are about 90 days behind on their payments have gone up to about 8.92 percent. This delinquency rate is the highest compared to most other types of loans. In fact, it ranks second to credit card debts in New York alone.
However, the bank says that the actual delinquency rate could be higher if all student loans that are currently in deferment or in forbearance are also taken into account. Apparently, the high delinquency rate can be attributed to a high interest rate and the several unexpected costs in education.
The promotion of unrealistic expectation of college is also to blame. Universities foster the belief that if a student graduates, his or her future is set. This leads to parents and students taking bad credit loans and using them to finance education in a highly rate university.
So if you are thinking about taking out a loan to pay for your education, you need to make sure that you weigh your options well. It’s not true that you have to go to Ivy League schools just to get good education. There are several institutions offering the same services but for a fraction of the cost.