Changes in stu­dent lend­ing and ris­ing tu­ition fuel an in­crease in con­sumer debt

Bloomberg Businessweek (Asia) - - CONTENTS - By Mark White­house and Mark Glassman

Amer­i­cans have bor­rowed from banks, fi­nance com­pa­nies, and credit unions for years, but lately the per­cent­age of con­sumer debt owed to one source—Wash­ing­ton—has surged. That’s be­cause of a change in the fed­eral law gov­ern­ing stu­dent loans.

The 2010 re­vi­sion re­duced the role of pri­vate providers in stu­dent loans by elim­i­nat­ing fed­eral sub­si­dies and guar­an­tees. The U.S. Depart­ment of Education ex­panded its di­rect loan pro­gram, prompt­ing a rise in the vol­ume of lend­ing.

Stu­dent loans are the only type of con­sumer loans made by the fed­eral govern­ment. Much of the bor­rowed money has gone to cover ris­ing tu­ition costs. Con­sumer debt has bal­looned to al­most 20 per­cent of gross do­mes­tic prod­uct.

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