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Student loans may hurt U.S. economy, collection legislation being considered

Dec 13, 2012 Philip Burgess

Student loan debt may be preventing graduates from procuring new lines of credit and have an overall negative impact on the United States economy in the coming years, according to Money News. In November 2012, students loans surpassed credit cards for the first time as the biggest source of delinquency and defaults on loans. The inability for recent graduates to repay balances may also weaken the institutions that issued the original credit lines. Therefore, government officials are considering new legislation that would change the way payments are collected, aiming to receive outstanding balances and allow individuals to maintain or improve credit. This may not bode well for debt collectors receiving accounts from student loans, as the change may move the industry away from private third party collectors. Loan debt
The New York Federal Reserve has published a report that shows that the total amount of student loan debt in the United States stands at nearly $100 billion. The average student loan amount carried is over $20,000. These numbers alone are not unbelievably startling, but the data also shows that over 11 percent of these loans are more than 90 days delinquent. Students face rising tuition costs, more than 5 percent on average from 2006-2010, according to Money News. On the other hand, earning for graduates in their mid-20s to mid-30s has fallen nearly 2 percent in the same span. This data suggests that students are paying more for school, and taking out loans that may be difficult to pay back due to the weakening economy and the decrease in average pay. This is likely to damage consumer credit reports, and may lead to individuals seeking out alternative credit, such as short term loans or eschewing high cost investments such as home and auto loans. New legislation
New legislation has been proposed and will be heard before Congress regarding the mounting student loan crisis, according to Business Insider. One solution is based on a British model, in which payments are taken directly out of workers' paychecks in proportion to the total loan. This could help recent grads better balance their money, but at the same time, it may further burden individuals, disallowing them from making payments on rent or credit card debt. This legislation might also be damaging to collectors, as it would essentially bypass the process in which debts are acquired by third parties.