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Student Loan Debt Outpaces Credit Card Debt

[Tuesday, August 20th, 2013]

If you think credit card debt in America is high, think again. The latest numbers show credit card debt is dwarfed by student loan debt, and is growing faster.

The Consumer Financial Protection Bureau (CFPB) estimates that the national student loan debt is $1.2 trillion, including government loans and private bank loans. Rohit Chopra, the student loan ombudsman for the CFPB, says that $1 trillion of that stems from government loans, with the rest of the debt coming from private sources.

Federally subsidized student loans known as Stafford loans were at a 3.4% interest rate until July 1st of this year, but since Congress took no action to keep the rate there, it has now doubled. Stafford loan recipients are now paying 6.8% on those outstanding debts.

In a space of less than two years, the CFPB says that student loan debt will grow by 20%. From the end of 2011 to May 2013, Chopra said student loan debt grew 20%; in the same time period, credit card debt grew by only about 2%.

What’s more, these student debt estimates don’t even include other ways people finance college, including home equity lines of credit and credit cards.

Using credit cards to finance college

For those reluctant to take out more student loans and considering putting some student debt on a traditional, revolving debt credit card, financial experts warn that although it can be tempting to put student costs on plastic, interest rates on credit cards are usually much higher than on student loans, either from the government or from a private bank.

However, most financial advisors agree that student credit cards can be not only a convenience, but also a valuable learning tool for students. Many student credit cards have low interest rates and even cash back reward programs. Giving college students access to a credit card for incidental expenses and pocket spending money helps them learn financial responsibility and get some practice paying off debt.

The Project on Student Debt estimates that of those graduating college in 2011, two-thirds had average debt of over $26,000. By comparison, in 1993 less than half of college graduates had debt. The average debt for those who did have some was less than $10,000.

The Credit CARD Act of 2010 made it more difficult for students under the age of 21 to get a credit card, but as long as they have a parent cosign for them to guarantee the loan will be paid, most people ages 18 and up can easily get a student credit card.

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