Auto and student loans increase in January

In January of this year, the Federal Reserve found that consumer credit rose by 7 percent from December. Of this credit, auto and student loans rose by 10 percent, while "revolving credit," mostly credit cards, rose by 0.1 percent.

As the Wall Street Journal explained, "The report suggests many Americans continued to replace aging cars and those damaged by last fall's Superstorm Sandy, even as paychecks fell due to the end of the payroll tax holiday in January. It also suggests that student debt continues to rise as many Americans attend college in the weak labor market."

There has been quite a bit of discussion in the news recently related to student loans and auto loans. The auto loan industry has been growing quite a bit compared to the past few years, suggesting positive news – more people hopefully need cars to get to work, or will be able to take on more work with cars. The student debt, however, poses a different story.

As the unemployment rate drops at a smaller rate than the student debt rate increases, there are expected to be more and more students graduating with high levels of debt, but without enough ways to pay off their loans. Even though the loans are considered an investment – improving professional knowledge to improve productivity and make more money than without the degree – if the unemployment rate doesn't allow for new jobs, borrowers may be unable to pay this back.

For individuals, this can often keep borrowers from future loans, including mortgages or other forms. For the country as a whole, if this trend continues, some economists are worried these payments will fall on the taxpayers.

Either way, the options are not ideal. However, for lenders, there are ways to help reverse this trend. With credit and risk management software, financial institutions can better determine the quality of a customer. By lending to qualified borrowers, banks can increase profits and, ultimately, make more loans.

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