Non-real estate household debt climbs thanks to rise in credit card balances, auto and student loans

Credit Requirements for Student Loans

While the volume of home equity, auto and credit card loans established a clear peak in 2008, with many consumers cutting back after the financial crisis, student loans have grown at a steady rate each year.

The Federal Reserve of New York also found that the rate of student loan defaults has risen since last quarter, and some worry that this trend may keep consumers from borrowing for houses or cars in the future. As applications for student loans grow, loan originators may consider using credit application software to lend to qualified borrowers.

While student loans are well intentioned – allowing borrowers to finance the education needed to make more money in the long run – the increasing accessibility to student loans has some economists worried.

Credit Requirements for Student Loans

The Obama administration encouraged minimal credit requirements and large loans to give all students the same opportunities, but the current drop-out and default rates may instead keep students from financial prosperity. As the price of college goes up and the average income goes down, more students are unable to pay back their loans, and the rate of loans behind on payments 90 days or more rose by 8 percent since last quarter.

Student loans, more so than other forms of loans, are much harder to liquidate and may lead to the inability to take out a mortgage or car loan in the future. For the growing number of students taking out loans, access to mortgages could decline.

One Wall Street Journal article warns against giving students easy access to loans due to their lack of upfront financing knowledge, and more restrictions could combat the rising default rates. But, there is also the question of making loans based on a school’s graduation rate or a student’s planned major – would only pre-law and pre-med, Ivy League students be allowed to take out loans?

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