Student Loan Debt Growth Could Ease

Student loan debt totals a record $1.2 trillion but the rampant growth could slow as the strengthening economy reduces the number of new loans, Deputy Treasury Secretary Sarah Bloom Raskin said during a speech Monday at the National Association for Business Economics in Chicago.

"Total federal originations have fallen since their 2012 peak and originations per borrower have fallen since 2010," she said in prepared remarks. "If these trends continue as the recovery strengthens further, they may noticeably slow the growth of outstanding student-loan debt."

Student loan debt, however, still outpaces credit card and auto loan debts and Raskin called for measures to reduce delinquencies and defaults so as not to impair borrowers’ future access to credit.

"Delinquency and defaults in sufficient numbers can undermine economic growth by crowding out other kinds of investment," Raskin said. "Negative credit events exacerbate access to not just mortgage credit, but also to other forms of credit."

Raskin wants any steps to address the student loan debt burden to include learning how borrowers view their loan repayment burden and finding out exactly why borrowers reach delinquent or default status.

"Making policy decisions to support the vitality and vigor of higher education in the face of troubling trends in delinquent or defaulted student loan balances is a responsibility we cannot shirk," she said.
 

Raskin said fears of a student loan meltdown have eased because the market is stable and there is a "great deal of integrity" in it. That said, consumer advocates are still reporting large numbers of complaints from delinquent borrowers who have been misinformed by student loan servicers and often went into default status as a result.

Last week, the Education Department reported that defaults on federal student loans fell for the first time in several years although they stayed far above levels reported before the recession.

Among borrowers who were in their third year of repayment as of a year ago, 13.7% had defaulted, down from 14.7% in 2012. Previous years’ default figures were reported differently, but they showed a sharp increase through the economic downturn.

 

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