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October 2011, Week 3

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Wed, 19 Oct 2011 22:14:22 -0400
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Student loans outstanding will exceed $1 trillion this
year

By Dennis Cauchon, USA TODAY http://www.usatoday.com/money/perfi/college/story/2011-10-
19/student-loan-debt/50818676/1

Students and workers seeking retraining are borrowing
extraordinary amounts of money through federal loan
programs, potentially putting a huge burden on the backs
of young people looking for jobs and trying to start
careers.

Full-time undergrads borrowed an average of 4,963 last
year, according to the College Board.

The amount of student loans taken out last year crossed
the $100 billion mark for the first time and total loans
outstanding will exceed $1 trillion for the first time
this year. Americans now owe more on student loans than on
credit cards, reports the Federal Reserve Bank of New
York.

Students are borrowing twice what they did a decade ago
after adjusting for inflation, the College Board reports.
Total outstanding debt has doubled in the past five years
-- a sharp contrast to consumers reducing what's owed on
home loans and credit cards.

MORE: For-profit colleges focus of student loan issue
STORY: How to avoid defaulting on your student loans
Taxpayers and other lenders have little risk of losing
money on the loans, unlike mortgages made during the real
estate bubble. Congress has given the lenders, the
government included, broad collection powers, far greater
than those of mortgage or credit card lenders. The debt
can't be shed in bankruptcy.

The credit risk falls on young people who will start adult
life deeper in debt, a burden that could place a drag on
the economy in the future.

"Students who borrow too much end up delaying life-cycle
events such as buying a car, buying a home, getting
married (and) having children," says Mark Kantrowitz,
publisher of FinAid.org.

"It's going to create a generation of wage slavery," says
Nick Pardini, a Villanova University graduate student in
finance who has warned on a blog for investors that
student loans are the next credit bubble -- with
borrowers, rather than lenders, as the losers.

Full-time undergraduate students borrowed an average
$4,963 in 2010, up 63% from a decade earlier after
adjusting for inflation, the College Board reports. What's
happening:

*Defaults. The portion of borrowers in default -- more
than nine months behind on payments -- rose from 6.7% in
2007 to 8.8% in 2009, according to the most recent federal
data. *For profit-schools. The highest default rates are
at for-profit schools that tend to serve lower-income
students and offer courses online. The University of
Phoenix, the nation's largest, got 88% of its revenue from
federal programs last year, most of it from student loans.
"Federal student loans are like no other loans," says
Alisa Cunningham, research chief at the Institute for
Higher Education Policy. "The consequences are so high for
making a mistake."

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