Student loan debt is on the rise, according to a report released Nov. 27 by the Federal Reserve Bank of New York.
In its Quarterly Report on Household Debt and Credit, the bank announced that outstanding student loan debt has increased to $956 billion in the third quarter of the 2012 fiscal year — an increase of $42 billion from the previous quarter.
“One reason (student loan debt) has risen is that states are still under enormous fiscal pressure to cut state funding, which means that tuition and fees continue to rise,” said UC Berkeley professor of public policy Robert Reich. “That in turn requires that students take out more debt.”
Of the $42 billion rise this quarter, $23 billion came from new debts while $19 billion came from previously defaulted upon student loans.
But the report may be somewhat misleading because it lumps private loans and federal loans together, according to Pauline Abernathy, vice president of the Institute for College Access & Success. Private loans, provided by private lenders like commercial banks, are a riskier way to pay for college than federal loans, which include benefits like flexible repayment options for students and debt forgiveness programs, Abernathy said in an email.
Despite rising student debt levels, Reich said going to college is still a sound investment for students.
“The lifetime earnings of college graduates are still 50 to 60 percent higher than the lifetime earnings of someone with just a high school degree,” he said. “There’s no question that, for good or ill, a four-year college degree continues to be the gateway to good-paying jobs in America.”
Contact Andy Nguyen at [email protected].