Student Loan Is the Main Culprit in Record Household Debt

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The student loan accelerated the evolution of household debt.

More of today’s data are showing concerning similarities to the conditions of the 2008 financial crisis. At this moment, Americans owe more money than when the credit bubble last burst. Student loan represents a considerable part in this financial tension actually. This type of debt tripled in a span of fewer than 15 years. Student debt now represents 10.6% of total consumer debt.

Household Debt Can Also Be Viewed as a Prosperity Sign

This Wednesday, the Federal Reserve Bank of New York delivered some concerning news. The national household debt reached record levels of $12.7 trillion. The peak was attained in the first three months of 2017.

On the one hand, this new milestone reflects an encouraging national wealth. The fact that more Americans than ever can afford to sign loans means that they first had to qualify for this service through a repaired credit. Debt is one of the main agents that can fuel spending, which is a healthy economic direction in this consumerism market. In the United States alone, the economic activity relies 70% on consumer spending.

On the other hand, this situation might indicate that the national economy reached an unhealthy extremity. Such a record household debt can attract new risks that may put financial stability into jeopardy. One of the leading factors that fueled this borrowing peak was the student loan. This obstacle in the way of prosperity accounts for 10.6% of the national household debt. Back in 2008, this marker represented only 5%. This might impair Americans from making purchasing decisions for high-tier consumer products or real estate.

The Student Loan Can Create an Overwhelming Number of Defaults

Along with credit cards and auto loans, the student loan might trigger a new wave of defaults. This extreme condition was enough to prompt massive mortgage meltdown that happened only a decade ago.

Nonetheless, economists are looking at other indices too that reveal a different situation than the 2008 financial crisis. Unlike last time, Americans grew more aware of the importance of micromanaging their own finances. By taking care of their economic responsibilities, people are more careful before they decide to become borrowers. This new trend is given away by the national economic boom America is currently going through. This elevated welfare makes the latest borrowing peak seem less threatening.

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