While many consumers have straightened out their finances since the end of the recent recession, one type of credit that remains particularly problematic are student loans, which may be leading many young adults to have bad credit.
Studies in the last year or two have shown that student loan debt is now far more concerning than consumers' credit card debt and auto financing bills, as balances on those accounts rose to be worth more than $1 trillion nationwide, according to a report from the Associated Press. And as more students graduate from college into an ultra-competitive job market still in recovery mode, many are saddled with thousands of dollars in debt that they have no way of paying off.
In fact, the average student loan debt balance recently climbed to more than $25,000 per person, up 25 percent from the total 10 years ago, the report said. Some also say this could soon become a problem for U.S. taxpayers who don't have student loan bills, as well, because roughly 80 percent of these balances are either guaranteed or issued by the federal government.
Experts say this shift toward rapidly expanding student loan debt can be blamed on tuition rates rising far more quickly than the rate of inflation, and now more young adults are also going on to higher education simply because a college degree is viewed as a necessity to get a job, the report said. Further, many people of all ages chose to go back to school during the recession; older consumers may have done so as a means of bolstering their employment qualifications after losing a job they'd held for years, and younger adults may have done so as a means of "waiting out" the downturn. In either case, those students likely borrowed heavily to remain in school.
Delinquencies a problem
Now, everyone from politicians to financial analysts are concerned about the implications of those borrowing habits, the report said. Recent data culled by the Federal Reserve Bank of New York shows that, currently, about three out of every 10 student loan bills are at least 30 days past due. In addition, borrowers aged 60 and older still owe about $36 billion in student loans.
"This could very well be the next debt bomb for the U.S. economy," William Brewer, president of the National Association of Consumer Bankruptcy Attorneys, told the news agency. "As bankruptcy lawyers, we're the first to see the cracks in the foundation. We were warning of mortgage problems in 2006 and 2007. The industry was saying we've got it under control. Nobody had it under control. Now we're seeing the same signs of distress. We're seeing huge defaults on student loans and people driven into financial difficulties because of them."
Consumers who fall behind on their loan payments will likely see their credit ratings take a hit. To ensure their standing is as strong as possible, consumers should regularly check their credit reports for unfair markings.