Fed Says Student Debt Puts Nation’s Economic Growth at Risk

April 16, 2013, Written By Justin Hefner

If you have a soon-to-be high school graduate planning to enter college this fall, there’s another reason not to let him or her get burdened by credit card debt.

A new report by the Federal Reserve, in its March interest-rate setting meeting, identified high college student debt levels as a growing risk to the nation’s economic growth. Some members of the panel said the high level of student debt loads may limit household spending that the U.S. economy depends on.

It was the first time that the Fed’s Open Market Committee had mentioned student loans as a possible risk to the nation’s economy.

The Consumer Financial Protection Bureau, the government agency that helps fight consumer fraud, estimates that college student loan debt is $1.1 trillion, second only to home mortgages. As tuition costs have spiraled and household income levels have fallen during the economic downturn, borrowing to pay for college has surged.

Congress and federal agencies have for years looked at ways to rein in the amount student borrowers are paying on government loans. Many college graduates are stuck with high interest loans and few opportunities to refinance them. The CFPB has been looking into ways to increase college loan refinancings.

“While these borrowers may not be in financial distress, they may be paying interest rates that are not commensurate with their risk profile,” the CFPB said in an October report.



The information contained within this article was accurate as of April 16, 2013. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.