Student loan debt nears $1 trillion

(MoneyWatch) Since the recession, Americans have vastly reduced the amount of debt they maintain, with one glaring exception: Student loans. Outstanding student loan debt now stands at $956 billion, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit . Student debt increased by 4.6 percent in the third quarter from the previous quarter -- when annualized, that's almost a 20 percent rate of increase.

Additionally, more student loan borrowers are falling behind on their payments, with the percent of student loan balances 90+ days delinquent increasing to 11 percent this quarter. This rate is now higher than the "serious delinquency" rate for credit card debt for the first time.

According to the Wall Street Journal, "since the end of 2007, just before the financial crisis hit, total student debt has grown by more than 56%, adjusted for inflation, the new Fed data show. During that time, overall household debt--including mortgages, student loans, auto loans and credit cards--fell by 18%, to $11.31 trillion as of Sept. 30."

Part of the problem is that unlike most other types of consumer debt, like credit cards or mortgages, student loans are notoriously hard to discharge, even if the borrower has filed for bankruptcy. Naked Capitalism's Yves Smith  notes that "student debt is senior to all other consumer debt; unlike, say, credit card balances, Social Security payments can be garnished to pay delinquencies. As a result, it has contributed to the fall in the homeownership rate, since many young people who want to buy a house can't because their level of student debt prevents them from getting a mortgage."

Another way student loans are vastly different than other consumer debt is that they require little in the way of underwriting. Most student loans are made through the federal government, which only vets borrowers in the most cursory of ways. In fact, the government doesn't seem to care whether you are a liberal arts major, with little chance to earn enough to keep pace with your loan payments or a software engineer, who should easily make enough money to carry the debt load. Smith likens the current student loan debt balloon to the recent subprime mortgage bubble, where lending standards are practically non-existent, as "anyone who can fog a mirror can get a loan."

About two-thirds of bachelor's degree recipients borrow money to attend college, either from the government or private lenders, according to the Department of Education. However, the total number of borrowers is most likely higher since the survey does not track borrowing from family members. For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000.

Just because the government is willing to lend more, doesn't mean that students should take the money. With numbers skyrocketing, most education experts advise that students limit total college borrowing to their estimated first year salaries.