Rising Consumer Credit Is Increasing The Risk Of Default

by Viraj Shah
The latest report by the Federal Consumer Financial Protection Bureau (CFPB) shows that the number of Americans, aged 60 and more, with some type of student loan increased four times in the decade 2005 to 2015, from 700,000 to 2.8 million. Many were found borrowing student loans to help children and grandchildren college finances, after which they struggled to, meet their own financial needs. The sharp increase in such debt-laden senior demography therefore raises concerns about credit being used to meet life’s needs. The condition could well lead to older generation being vulnerable to financial insecurities, reports David Newville of the CFED.

According to CFED director, the research findings are a clear indicator the any positive growth in the economy has not changed the lives of the average American. In fact, the report states, nearly 8.2 million American who are covered by Affordable Care Act are consistent with paying their credit payments. Hence, there is ‘ongoing financial vulnerability,’ which Americans have to come to terms with, specially so in the context of student loans.
Intergenerational issue
On an average these loans had doubled from $12,000 to $23,500 over the decade, the study was conducted. According to it, in 2015, the outstanding loan commitment from older students was $66.7 billion. In terms of numbers these were 867,000 borrowers aged 65 years and more.  
Parallel research reports, such as Pew Survey of American Family Finances reveal that as many as 60 percent of households in America are experiencing ‘financial shock,’ in the past year. The student loans continue to be burden of many of the retirees as they balance their finances between housing and health costs. CFED has called these as ‘cost-burdens’ which is felt by nearly 51.8% of those renting accommodation. Apart from health and housing, there were racial and gender-based financial influences which threaten the security of this senior generation.

Additionally, the currently available forms of retirement savings account, numbering nearly twelve, also create confusion to save right for the future.
The report found Consumer Reports attorney Suzanne Martindale noting that there is an established link between “retirement crisis and education debt crisis.” In the last 10 years, the aged borrowers who lived on fixed incomes and multiple debts such as mortgage, credit card as well as retirement plans were vulnerable to heightened financial insecurities due to the student loan debts.
Analysts are of the view that ‘rising cost of education’ is one of the biggest issues. In order to fund education, many families are going into debt to pay for education. The schools themselves are under pressure due to cut in public funds and are charging higher tuition fees. The loans provided by federal government are the sole route for safe financing of such education. Private lenders charge high interest loans, and many resort to charging Social Security Payment to cover debt, if primary borrower defaults.

 
Conclusion:
Rising student debt and usage of credit card for consumption is going to turn into a major problem. Not only it is leading to higher debt but also creating false demand which will not be sustainable.