It’s the time of year to celebrate the accomplishments of those students who have finished their studies and are graduating.
Now, it’s also time to start paying back all those student loans taken out to fund a college education.
In a study recently released by the Federal Reserve Bank of New York, total student debt outstanding as of the end of the first quarter of 2014 was reported to be $1.11 trillion. Student loans outstanding increased by $31 billion during the first quarter of 2014, an increase of about 2.8 percent.
As compared to the same period in 2013, student loan debt increased by $125 billion. This year over year increase in the total amount of student debt outstanding represents an addition of over 12 percent.
Assuming a generic 5 percent annual cost on the $1.11 trillion of outstanding student debt, the annual cost of servicing this debt would be $55.5 billion per year. Of course, these borrowings must be paid back too. So the overall cost of the debt, along with paying back the amount borrowed, will be even higher.
To put this amount of student loan debt in perspective, total credit card debt outstanding at the end of the first quarter of 2014 was reported by the Federal Reserve Bank of New York to be $659 billion. Credit card debt decreased during the first quarter by $24 billion and also decreased as compared to the end of the first quarter of 2013 by $1 billion.
The Federal Reserve Bank’s analysis also showed 90-day delinquency rates improved slightly for student loans during the first quarter of 2014. Student loans more than 90 days delinquent decreased to 11 percent at the end of the first quarter from 11.5 percent at the end of the prior quarter.
As with any type of debt, those who choose to borrow should do so prudently. Debt repayment, whether it is from mortgage debt, credit card debt, student loans or some other sort of borrowing, is generally more challenging than incurring the debt originally.
Kirby Brown is the CEO of Beneficial Financial Group, which is based in Salt Lake City.