Business

A record $1 trillion of student-loan debt is being carried by college and grad school alums: NY Fed

There are possibly a trillion reasons that your adult children may be home for the holidays this year.

A trillion dollars is the record amount of student-loan debt being carried by college and grad school alums, according to the New York Federal Reserve.

Student-loan debt is larger than most other forms of consumer credit, including credit-card balances, home-equity lines of credit and auto loans.

The biggest difference is that student loans stay with you to the grave. No discharging the debt in bankruptcy — you own it until you pay it off.

Despite this lockup on your finances, the delinquency rate on student loans has spiked past 12 percent and now is higher than credit-card and mortgage late payments.

You need look no further than the colleges themselves for the reason that recent US college grads are in a world of trouble.

Tuition at state schools — often the best choice to keep a handle on costs — have risen 72 percent since 2000, according to a US Education Department study. That’s a 5.6 percent annual increase, well above inflation.

The ballooning student-debt problem will have “potentially lasting effects,” says Steven C. Wieting, Citigroup’s director of economic and market analysis, this week.

“Student-loan debt crowds out other consumption,” Wieting says, pointing out that all other purchases get put on the back burner, including buying a car or home — and even marriage could be delayed by this debt burden.

Another lowlight of his report is that the average earnings for 25- to 34-year-olds with a bachelor’s degree and a full-time job fell at a 1.6 percent annual rate from 2000 to 2010.

So the squeeze is on, but there may be some help on the horizon.

Rep. Tom Petri (R-Wis.) is introducing a bill this congressional term that will overhaul the debt-collection portion of the student-loan program, replacing it with automatic withdrawals from borrowers’ paychecks based on their income. It’s a system that has been used in the UK and Australia for years.

“This doesn’t mean leaving taxpayers on the hook if a student borrows too much — everyone would still pay back what they borrow under this system,” Petri said. “It does mean providing much stronger protections against the kind of financial ruin that is all too prevalent in our current system.”