Student loans are the next great subprime crisis! At least that's what the usual purveyors of doom and gloom say (see this, this and this). The numbers are big, the default rates are high and soon enough this is going to tip the economy into the next crisis or recession.
Not so fast, writes Torsten Slok, chief international economist for Deutsche Bank AG, in his forthcoming September chart-book.
Slok notes that 93 percent of student loans outstanding have balances of less than $30,000; 1.5 percent of the U.S. population has a student loan of more than $50,000; and only 4 percent of people between the ages of 20 and 39 have student loans in excess of $50,000.
Higher loan balances are often, but not exclusively, associated with graduate degrees. Typically, the business professionals, lawyers and doctors who carry this debt can service it, courtesy of the higher incomes and lower unemployment rates they have compared with their peers.
About 70 percent of borrowers owe less than $25,000 -- a manageable amount for most.
To provide some context, the Federal Reserve Consumer Credit - G.19 shows student loans outstanding were $1.27 trillion in the second quarter of 2014. The credit card debt outstanding was $873 billion. Also, student loans typically have a 10-year maturity period, while credit card debt can be paid off or carried long term, though at high interest rates.
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