Student Loan Debt to Surpass $100B for First Time

By FOXBusiness

College students are facing a double whammy upon graduation: a weak labor market and record loan amounts, a crippling combination for young adults trying to launch careers.

Students and workers alike are borrowing in record numbers to receive a college degree, with loans hitting more than $100 billion and more than $1 trillion in outstanding loans, both for the first time this year, according to the Federal Reserve Bank of New York.

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The average amount of loans a full-time undergrad borrowed last year was $4,963, according to the College Board; after adjusting for inflation, students are borrowing twice the amount compared to what they did 10 years ago.

Default rates are also on the rise up to 8.8% in 2009 from 6.7% in 2007, according to federal data; the highest default rates are among graduates from for-profit schools

While the Great recession took its toll on consumers across the nation, young adults are particularly feeling the brunt of the financial and housing market collapses.

According to Chris Christopher, IHS Global Insight U.S. economist, that in addition to massive student loan balances, recent college grads are facing an extremely tight labor market along with wage increases that are not on par with price increases.

"It is delaying them from buying a car, getting married, having children—it’s a vicious cycle," he says. "The volume of student loans is increasing, and the first reaction is to pay food and rent and to delay [paying] other things, like loans."

The anemic job market is also pushing many older unemployed workers to return to school in hopes of scoring a better-paying job once they secure a diploma, according to Christopher.

"Returns to education are also higher than ever. You might be left out to dry if you don't go to school."

However, Christopher says student loan debt is not the next "bubble."

"It's quite different than a stock market bubble or a real estate bubble here, because we are talking about debt. It is increasing at a heavy rate and causing a burden on society. It's the job market that will solve this problem. But, I don't characterize it as a bubble."

The increasing rate of student loan debt during a time when credit card and mortgage debt are both falling  is a side effect of the recession—not what is keeping it going, Christopher says.

"We are in a very deep recession, with a prolonged, anemic recovery. It's having cascading effects in all different aspects of the economy, and here is one of them."

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