Student Loan Debt: You Wouldn't Expect This Age Group to Have the Most

NEW YORK (MainStreet) — The borrowers who carry the highest student loan burden are 30-somethings, not fresh-faced college students.

Recent research from the Federal Reserve Bank of New York shows that although the under-30 age group has the most borrowers at 14 million who owe a total of $292 billion, those who are 30 to 39 years old owe the most with a whopping $307 billion in debt.

The other age groups are not faring better with the 40 to 49 age group owing $154 billion, the 50 to 59 age bracket at $106 billion and the over-60 category currently carrying around $43 billion. All of the age brackets together, or 37 million student loan borrowers, have a total outstanding debt toward $1 trillion.

Since the peak of consumer debt in 2008, student loan debt has been the only form of consumer debt that has grown, the Federal Reserve Bank of New York said. The balance of student loans have surpassed both auto loans and credit cards. Student loan debt is now the largest form of consumer debt outside of mortgages.

"Clearly, it is a big problem," said Nick Givogri, a regional director with Merrill Edge, part of Bank Of America's consumer bank unit. "People need to track their spending and savings. Everyday there are tradeoffs people have and they are learning life lessons."

The cascading impact of student loan debt can damage credit scores, resulting in consumers having difficulty in purchasing a house or qualifying for loans and having to pay higher interest rates, he said.

Outstanding student loan debt is now the second largest form of consumer debt, but about half of the $1 trillion in student loan debt isn't being repaid because borrowers are struggling financially, according to an analysis released by the Consumer Financial Protection Bureau.

Nearly 20 million Americans attend college each year, and close to 12 million or 60% borrow annually to help cover costs, according to the Chronicle of Higher Education.

Americans continue to rack up more debt. The average student loan balance for all age groups is $24,301 as of the first quarter of 2012, said the Federal Reserve Bank of New York. About one quarter of borrowers owe more than $28,000, 10% of borrowers owe more than $54,000, 3% owe more than $100,000 and less than 1% more than $200,000.

Part of the problem is that college tuition costs have tripled during the past decade and continue to rise, said Givogri. Now the average tuition at a public university is $20,000 a year while private schools cost $40,000 a year. The unemployment rate still remains high at 7.4%.

Among all bachelor's degree recipients, the median debt was $7,960 at public four-year institutions, $17,040 at private not-for-profit four-year institutions and $31,190 at for-profit institutions, the College Board said.

As of October 2012, the average amount of student loan debt for the class of 2011 was $26,600, a 5% increase from approximately $25,350 in 2010, according to the The Project on Student Debt.

The age group that is struggling the most are borrowers in their 40s, said Federal Reserve Bank of New York Consumer Credit Panel. As of early 2012, borrowers in their 30s have a delinquency rate (more than 90 days past due) of about 6%, while borrowers in their 40s have a delinquency rate double that at about 12%. Borrowers in their 50s have a delinquency rate of 9.4%, and those over 60 have a delinquency rate of 9.5%.

Consumers can pay down their debt faster by taking even $100 a month and applying it to the principal, said Jeff Golding, CEO of WilliamPaid, a Chicago-based company which allows people to build credit through paying their rent online.

If you currently have an outstanding loan of $40,000 over a 15 year period at 6.8%, your monthly payment is $355. If you make the minimal payments only, you will pay a total of $63,900.

By simply increasing your payment by $100 a month or $25 a week, you wind up paying $13,772 in interest for a total of $53,771, which saves you $8,400 in interest. You can also pay off the loan in 10 years and 7 months instead of waiting 15 years, Golding said.

"Consumers need to challenge themselves to apply a little additional money each month and look at what the amortization does," he said. "Even if you add $20 a month, it saves you $2,370 in interest and you knock off 1 year and 3 months."

While many consumers are taking steps to save more money, many have competing priorities, Givogri said.

One option for consumers who want to pay off their high interest debt is consider taking a loan from their 401(k), because current interest rates are low or to stop making contributions to their retirement plan temporarily until they reach their goal of getting out of debt, he said. However, consumers should consider factors such as whether their company matches their 401(k) contributions and the potential return of their investment, he said.

"People need to be really honest with themselves to get out of debt sooner," Givogri said.

The amount of student loans will likely increase during the next decade, Golding said.

"I don't see it reversing itself," he said. "It's going to continue to grow unless the economy changes and school becomes more affordable."

--Written by Ellen Chang for MainStreet

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