Could $1T student loan debt derail U.S. recovery?
(CBS News) - Student debt in the U.S. has topped $1 trillion - that's more than Americans owe on credit cards or car loans.
Though it's not a financial crisis now, it could be if the level of student debt continues to mount as it is now, former Labor Secretary Robert Reich said Wednesday on "CBS This Morning."
There are some key differences between student loan and the housing debt that recently threatened the country. "The student loan market is about a tenth of the size of the mortgage market," business and economics correspondent Rebecca Jarvis said Tuesday. "So if all the student loans in this country were to go bad at the same time, you would have a tenth of the size of the problem. But the other key here is that they likely all won't go bad at the same time."
Jarvis called the problem "a slow burn." She said, "Unlike the housing crisis where everything went bad all at once, the problem here is...where you have recent college graduates delaying things, like having children, delaying thing like buying homes, like their boomer parents. When you think about, 'Hey, we're in this recovery right now, we need everybody to be a participant in the recovery to make it real.' And when you have all of these recent college graduates, 25 percent of them can't get a job right now. When you have a problem like that, it just creates bigger problems down the road."
Reich, who teaches public policy at the University of California, added additional education debt is a growing problem. "A lot of students cannot get jobs in this economy," he said. "They have gone into additional education because they couldn't get jobs, but now they're finding that they have more debt they have to pay off, and that additional education, although it will pay for itself over the long-term, right now is a huge debt burden."
The average student loan debt per borrower is $25,000, according to the Project on Student Debt, an initiative of the Institute for College Access & Success, a nonprofit independent research and policy organization. Additionally, 30 percent of all student loans have past-due balances of more than 30 days, according to the Federal Reserve Bank of New York.
And costs keep rising.
"The cost of college education is rising faster than inflation, so it is becoming harder and harder for students to afford," Reich said. "A lot of state governments - remember, about 70 percent of students in college and university today are in state institutions - and the states have been under a great deal of budget strain. They have been reducing state support. That means tuition and fees have been going up very, very fast. Students and their families are under greater and greater strain."
For more on student loan debt and how things may change in education in the years ahead, watch the video in the player above.
Reich's latest book is "Aftershock: The Next Economy and America's Future."
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